How Should I Depreciate a Sewer Line on my Taxes?

Question

I had a sewer line collapse in my duplex last fall - the old clay pipe collapsed, causing black water leakage into my basement and I called in Roto Rooter for an emergency containment and restoration since I had tenants living in one half and was actively showing the other half. It was damn expensive - I was out of pocket $19,887 and eventually received an insurance reimbursement for a little over $5k. For this they did excavation through the entire length of the basement and yard, new concrete, black water restoration, etc.

Now that I'm filing taxes myself through TurboTax (as I always do), I'm a bit stumped as to how to deduct. IRS.gov says any restoration is an improvement, and given the amount, I don't qualify for a Safe Harbor and would probably trigger some questions if I put it as a repair, so I'm pretty set on depreciating it.

Does anyone know how I'd handle that? I've seen various opinions around the internet saying 5 yrs, 15 yrs, 27.5 yrs, or just do an exception all at once. And do I need to break out what was spent on excavation vs restoration or any other classification?

And also, I assume I'd only deduct the net amount of about $15k that I paid ($19,887 minus the $5k reimbursement from insurance?).

Big thanks to anyone with some insight on this!

Ashish Acharya · Answer

In my opinion, It would be depreciated over 27.5 years.

Sewer lines can be land Improvements, but when that fact that the lines relate to the operation and maintenance of the rental units makes it a structural component of the building.

I have seen people treat it both ways. I reply on this court finding.

"The term “structural components” includes such parts of a building as walls, partitions, floors, and ceilings, as well as any permanent coverings therefor such as paneling or tiling; windows and doors; all components (whether in, on, or adjacent to the building) of a central air conditioning or heating system, including motors, compressors, pipes and ducts; plumbing and plumbing fixtures, such as sinks and bathtubs; electric wiring and lighting fixtures; chimneys; stairs, escalators, and elevators, including all components thereof; sprinkler systems; fire escapes; and other components relating to the operation or maintenance of a building"

"AmeriSouth relies on two classifications within Rev. Proc. 87-56 for its claimed tangible personal property; asset class 00.3 (land improvements, depreciable over 15 years) and asset class 57.0 (distributive trades and services, depreciable over 5 years). It includes its water-distribution system, sanitary-sewer system, gas lines, and site electric in the former category, placing everything else in the latter. But asset class 00.3 excludes “buildings and structural components as defined in section 1.48-1(e) of the regulations.”

Open to other interpretation by colleagues.

How Should I Depreciate a Sewer Line on my Taxes?

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