Jeannie and Robert Peoples vs. IRS Commissioner
Before my meeting with the IRS Tax Court official I had sent him a spreadsheet showing repair expenses along with copies of the receipts for these repairs. At our meeting he flagged the items
identified below and wondered whether some of them may be items that should be depreciated rather than claimed in one year as a repair. I contacted Jeannie and asked her about these items and then sent the IRS official the following memo:
I sent your list of questionable repairs to Jeannie and talked with her on the phone about them. She explained that the basement is used by day care children every day as a play area. They had an ongoing problem with water in their basement due to runoff from neighbors’ property. In 2008
there was a new house on the hill and the water flow into their home increased substantially. The water ran down the walls (cement and drywall) as well as coming in from the floor. The water soaked their ceiling insulation and brought down the old ceiling. At times the water was well over their ankles. They replaced their sump pump to keep up with the incoming water.
According to IRS Publication 587 Business Use of Your Home, “A permanent improvement increases the value of property, adds to its life, or gives it a new or different use…. Repairs keep your home in good working order over its useful life.”
The work replaced an old ceiling and drywall that were destroyed and puts the basement back to what it was before the water damage. The work didn’t increase the value of their home, didn’t add to its life or give it a new or different purpose. It could have been claimed as a business casualty loss. Therefore, I believe this work should be considered a repair.
The work below for the basement was to replace the damage caused by the water:
4/7 – Lowes $53.68 – This is for a new ceiling fan in the basement
6/02 – Lezzer Lumber – $1,311.86 – This is lumber to replace the fallen
ceiling, including replacing ceiling tile
6/4 – Lowes – $1,351.35 – This is also for ceiling tile
6/23 – Lowes $1,008.30 – This is for a variety of tools and to replace the OSB
board (plywood for the ceiling)
3/19 – Wilson Contracting $527.84 – This was for a contractor to replace some outside carpet, a broken toilet and a broken plate under the sink in the basement. This is a repair.
5/21 – Lowes – $743.32 – This was replacing sections of a plastic fence with wood fencing and extending the length of the fence. I believe this should be depreciated over 15 years as a land improvement (150%DB).
5/23 – Lowes $107.00 – This was for patching a sidewalk. It was not part of any larger project. A repair.
6/5 – Lowes $220.48 – This was a window air conditioner that replaced an old one in the living room. This should be treated as personal property and depreciated over 7 years (MACRS).
6/21 – Lowes $639.40 – This was a small refrigerator used by the children when outside and using the pool. This should be treated as personal property and depreciated over 7 years (MACRS).
7/26 – Swisher Concrete – $476.47 – This was rubber mulch for the outdoor play area. This should be treated as personal property and depreciated over 7 years (MACRS).
8/12 – Catalano Cycle Center – $177.92 – This is personal and should not have been deducted.
8/24 – Lowes – $320.10 – This is a storm door that replaced an old one to the basement. This is a repair.
9/3 – Lowes – $187.55 – This is a weed eater and a propane tank to help heat the pool used by the children. These are supplies and should be claimed in one year. I would suggest leaving them as part of repairs.
11/30 – Lowes $38.87 – This is water seal for the concrete patio. It is not part of a larger project. This is a repair.
2/8 – Quehanna Millwork – $785.01 – This was to reframe the outside entry-way into the basement. This should be treated as a repair.
4/29 – Quehanna Millwork – $240.09 – This was for shelving for a closet to store daycare items. This should be treated as personal property and depreciated over 7 years (MACRS).
4/29 – Quehanna Millwork – $426.92 – This was for shelving for a closet to store day care items. . This should be treated as personal property and depreciated over 7 years (MACRS).
6/28 – Clearfield electric and plumbing – $627.87 – The electric cord from the basement dryer melted and overheated the electrical panel box. This was to repair the panel box and electric cord. This is a
repair. Same for the item below.
7/5 – Clearfield electric and plumbing – $382.02
8/6 – Floor Coverings – $801.54 – This was to put sticky tile in the basement. This should be treated as personal property, 7 year depreciation (MACRS).
8/20 – Dunhams sport – $79.66 – These were personal shoes and should not have been deducted.
11/12 – Hugil – $325.00 – This was for a garbage dumpster (a “roll off”). This should be treated as personal property, 7 year depreciation (MACRS).
11/23 – Tractor supply co. – $162.16 – This was for a propane tank to heat the garage. This is a repair/maintenance.
12/22 – TD Fabricating and Welding Enterprise – $277.50 – This was for a plastic welder used by her husband to repair a plastic playhouse and bench (Little Tykes). This is a repair.
IRS Response: The Tax Court official accepted our argument that the above expenses were repairs.