The Carpet Debate: Depreciation or Expense?

[jksmurf]

Hi,

I called the title of this thread "the carpet debate" not only because my question pertains to carpets, but reading the forum posts, many times carpets are used as examples, which appears apt.

I believe my Questions are simple, but the debate that surrounds it appears (to me at least) somewhat more complicated. I'm "fairly new" to all this, so bear with me, but I have read a lot over the last year or so.

I had both the "carpet underlay" and "vinyl flooring" replaced in a house I rent out. The underlay/carpet were old and worn out. Both replacement items were new (not 2nd hand, not repaired).

Both items were < $500, the "new limit".

First Q.
Being < $500, should I (and can I?)

A. Claim these under Repairs and Maintenance (R&M) or
B. Follow IRD's advice and consider these as "improvements", adding them to the Chattel List (capitalise).

I know it's not big money we're talking here, but for future reference I'd really like to to get the principle correct and know why I chose one option over the other.

Second Q, following on from whether A or B is better (more correct).

If I (have to) add these to my chattel list as new chattels (i.e. R&M NOT allowed), presumably I should just write off the old items as worth 1$ and remove them from the list?

Third Q.

The writing off of the old carpet/vinyl is complicated by the fact this was my first investment, and I grouped the vinyl flooring chattels together as "Furniture/Lights/Vinyl Flooring/Oil Heaters (Acquired after 31 March 1993)", rather than individually itemise them. I had not yet learned about the value of a Chattel Valuation, which I had performed on a subsequent purchase (plug for Valuit at this point). I did itemise carpets separately however.

How should I itemise the vinyl flooring now? Simply remove the Vinyl and restate as "Furniture/Lights/Oil Heaters (Acquired after 31 March 1993)"?

Thanks, all and any advice/pointers in the right direction are appreciated.

k.

[CJ]

1. expense since under $500 - not as R&M but as asset under $500. If over, you would have to capitalise. How much did it cost though. Was it less than $500 each but more than $500 combined. If so, then were they bought on the same invoice?

2. You would write off for the amoutn you got for it. if it went to the tip, then write of for $0.

3. I think you stuffed yourself since you grouped. Its value probably would be minimal however since you repleced it with new stuff for under $500 - treat it as a learning experience.

[jksmurf]

Hi CJ,

Thanks for getting back on this:

1. Expense since under $500 - not as R&M but as asset under $500. If over, you would have to capitalise. How much did it cost though. Was it less than $500 each but more than $500 combined. If so, then were they bought on the same invoice?

A1. It was less than $500 each but more than $500 combined.
A2. Separate invoices

Sorry for sounding dim, but can you explain the "if over, you would have to capitalise" bit again? I though it was either an expense (<$500=>R&M, NOT an Asset) or simply becomes a <$500 Asset?

Your reply suggests it should be put down as an expense AND an Asset which presumably I should depreciate? But it can't be both as suggested by this http://www.propertytalk.com/forum/sh...8&postcount=23 post?

2. You would write off for the amount you got for it. If it went to the tip, then write off for $0.

.

OK, Tip it was! 0$

3. I think you stuffed yourself since you grouped. Its value probably would be minimal however since you replaced it with new stuff for under $500 - treat it as a learning experience.

LOL, yeah I know. Put it down to inexperience. I just don't want to make the same mistake again; that's why I am here, learning :-)

k.

[CJ]

Buying new carpet is an asset, no matter how much it cost. However, if under $500, you are allowed to take the cost through the P&L rather than capitalise it (special de minimus rules in legislation to stop people having to capitalise and depreciate everything).

Therefore, the purchase wasn't R&M but an asset, but I would put that through the P&L as "Asset under $500" or similar.

If over $500, then you have to capitalise and depreciate.

There are different lines of argument to say it would be R&M but since you get to expense it as an asset under $500, there is no point going into.

[jksmurf]

Thanks CJ, a simple explanation much appreciated.

k.

[masteraccountants]

Hi,

The only proviso on claiming the replacements under Items Under $500 is that they were not bought on the same day.

Although each item might be under $500, if they were purchased on the same day, you have to add them together and only claim as Items Under $500 if the total is still less than $500.

If not, you have to capitalize them and claim depreciation.