Depreciation or Expense

[Lynn Green]

I spent $20,000 on replacing decking front and back. It was Trex , which is supposed to be lifetime warranty, that is another issue. Also, we replaced siding on the East and West side of the house, which was another $20,000. I wanted to expense on our 2021 taxes and my CPA says it needs to be depreciated. I read the tax regs and read it to say that if the property was not maintained and went into disrepair and you had to replace the "deck" you had to depreciate. The property was maintained, the materials were defected, so I want to expense. Thoughts ?

[Richard Duane McClellan]

Not a CPA.  However you should depreciate the decking.  Ask your CPA if the Trex material would be considered an impaired asset and if you can expense whatever the remaining value is all at once.

[Simon W.]

Listen to your CPA. It is not an expense no matter how much you want to reword it.

No maintenance cost $20K. A replacement usually means capital improvement. What you actually spent on maintaining will be the expense.

[Michael Plaks]

Quote from @Lynn Green:

I spent $20,000 on replacing decking front and back. It was Trex , which is supposed to be lifetime warranty, that is another issue. Also, we replaced siding on the East and West side of the house, which was another $20,000. I wanted to expense on our 2021 taxes and my CPA says it needs to be depreciated. I read the tax regs and read it to say that if the property was not maintained and went into disrepair and you had to replace the "deck" you had to depreciate. The property was maintained, the materials were defected, so I want to expense. Thoughts ?

Reading the regs is one thing. Interpreting them correctly is quite another thing. Normally, under the Tangible Property Regulations, both items will have to be capitalized and depreciated over 27.5 years, not expensed. There is a tiny chance that, after a thorough review of your circumstances and studying recent court precedents, we can find some room for an aggressive position on one of them, but notice the word "tiny" that I used.

Excellent point made by @Richard Duane McClellan: if the existing deck cost $20k, and only $5k of it had been depreciated, then you can write off the remaining $15k of it at the time you replace it with a new one.

[Allan C.]

@Michael Plaks could Safe Harbor for as Small Taxpayer be applied so the improvement cost can be expenses over a 2-3 yr period?

[Michael Plaks]

Quote from @Allan C.:

@Michael Plaks could Safe Harbor for as Small Taxpayer be applied so the improvement cost can be expenses over a 2-3 yr period?

This is not how the STP safe harbor election works. It would result in 1 yr, never 2-3 yrs, but they won't qualify for it regardless.