Paid $20000 down payment on $65K commercial roof. It will not be finished this year. How do I handle expense? Business reports as partnership
Thank you for the reply. However we already know that. The question was about a down payment in 2019 but the roof will not be completed until 2020. Can we deduct anything relating to the $20,000 spent in 2019 in tax year 2019? Is the correct answer nothing? I have read the IRS guidelines but this is unusual case.
nothing can be deducted until the whole roof is placed into service. . however if separate structures are involved - say a the building and a detached garage, if one was finished before the end of 2019, then the cost allocable to that is depreciable.
from IRS pub 946 on depreciation
Placed in Service
You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Even if you are not using the property, it is
in service when it is ready and available for its specific
Example 1. Donald Steep bought a machine for his
business. The machine was delivered last year. However,
it was not installed and operational until this year. It is considered placed in service this year. If the machine had
been ready and available for use when it was delivered, it
would be considered placed in service last year even if it
was not actually used until this year.
Example 2. On April 6, Sue Thorn bought a house to
use as residential rental property. She made several repairs and had it ready for rent on July 5. At that time, she
began to advertise it for rent in the local newspaper. The
house is considered placed in service in July when it was
ready and available for rent. She can begin to depreciate
it in July.
Example 3. James Elm is a building contractor who
specializes in constructing office buildings. He bought a
truck last year that had to be modified to lift materials to
second-story levels. The installation of the lifting equipment was completed and James accepted delivery of the
modified truck on January 10 of this year. The truck was
placed in service on January 10, the date it was ready and
available to perform the function for which it was bought.
If the roof was not completed "and" placed in service on or before Dec 31, 2019 then you have absolutely nothing to report concerning it, on your 2019 tax return. Not one penny.
Just for clarification, what you spend on the roof is not an expense. The roof is an asset that must be depreciated over time. Being this is for a commercial business, it gets depreciated over 39 years and depreciation does not start until the asset is placed "in service". That can't happen until the roof is completed.
Your "down payment" is not a deduction on any tax return in any way, shape or form. It will be part of your cost basis when you enter it in the business assets section of your 2020 tax return when you complete that return next year, in 2021.