tree removal expense?

[roaringbranch]

I paid $3600 for removal of dead trees in a wooded area of the one-acre lot where my rental house is. The trees were not a danger to the house, but I was concerned they could fall on the adjacent power line serving the house. Is this reportable as a maintenance expense?

[ColeenD3]

Please see this answer from PaulaM.

If the tree removal was necessary for overall safety of structure/tenants or resulted from weather damage, then it is an expense. The expense category you selected will work.

If the tree removal was part of a landscaping endeavor, then you would capitalize and depreciate.

[roaringbranch]

Thanks for your help. Based on your response, I think the tree removals qualify as an expense in the "overall safety" category, since the trees were dead and posed a hazard of falling. If they were alive, I definitely would not have done the work for landscaping reasons. 

[DavidD66 · Accepted solution]

It's definitely a deductible expense.

[Raeka]

I have similar question. I spent good deal to have a lot of trees removed and a lot on new plants shrubs, etc.

It was all part of new landscaping plan. So this answered my tree question but what of the shrubs, flowers, etc.? Do I include that as improvements too?

[ToddL99]

Yes, shrubs, hedges, sod, landscape brick & rocks, retaining walls, etc. are improvements to the property. The cost is added to the basis of your property and will be taken into account when you sell.

[Raeka]

Thanks again.

I paid for all of that on my personal credit cards. At the end of the year, I paid myself back as much as the corporation could afford in the checking account to help reimburse me for those credit card charges I paid.  (I always pay my credit card off in full each month). Is there some special way I need to enter this in TurboTax. And how do I tell TurboTax that its not a draw but payment for the improvements?

[ToddL99]

There is no "special way" to enter this in TurboTax; removal of the trees would be entered as "repairs and maintenance" (Expenses) and the landscaping (e.g. shrubs, sod, retaining wall) would be be entered as an asset (Assets/Depreciation).

Just enter the costs in Expenses or Assets/Depreciation. How you paid for them at time of purchase (personal credit card) or reimbursed yourself from the rental properties checking account doesn't get entered in TurboTax. These are depreciable improvements to the property.

[Raeka]

Thank you so  much!

[Raeka]

One reason I am confused about the personal credit card, is my CPA one year, when asked about a figure on my return told me "The credit card charges are treated as an investment by the owners since the credit cards are not on the books of the corporation."  He took the total of my credit cards and deducted some draws we took and put the Net figure on Schedule K line 16 d as a negative figure.  ??

[WendyN2]

No, that is not correct. Here is the rule (and these are in my words, but I am also a CPA - been doing this a very long time - and this is the rule): If a purchase is made on a CC to a merchant that falls in line with your line of business and is considered reasonable (not necessary, but reasonable), you must save the receipts - physical or printed emailed receipts - for the detail of the total purchase - in order to deduct. Now, whether to capitalize or expense, of course, follows general IRS guidelines. So, for example, if you are an on site GC and you buy tires for a friend's car, the receipt will show the tire type, which will then dictate the vehicle class. If they're for a nice Beamer, not in like with a general contractor. 

IRS Definition: 

Key Takeaways: "Current expenses are the necessary purchases that keep a business running such as rent, utility bills, and office supplies. Capital expenditures are asset purchases that have a useful life of longer than one year and are considered long-term investments in a business."

Having said that, your CPA cannot decide for you what to do with those expenses you've put on a CC, they can only advise you as to the rule. This decision is yours to make, because it is your gamble as to whether or not you should be "randomly selected" for Audit by the IRS for a given year (they usually go back 3 but can go back as far as 5 for these "randomly selected" Audits). 

Key takeaway, again, is following the rules for what is and is not an "expensable" item. I tell all of my clients to get a plastic ziplock bag and keep it in their glove compartment specifically for this purpose. Just toss those receipts in there when you've made the purchase! 

I hope this helps!

[Raeka]

Thank you so much for help.

So are you saying it doesn't matter how I purchased these items in order to list them on the tax return as long as I have the receipts?

I have every single receipt for all the places I made the purchases. They are all stores related to residential ppty. Landscape companies, Home Depot, Lowes, etc. I know which are landscape improvements or maintenance and which are building improvements or repairs.

I don't need to treat these expenditures in any special way just because I used my personal card? I paid myself back with a large draw from checking at end of year and am still owed about $1500 which I will take this year. But I don't need to list that as say, a shareholder loan or some other way? Just ignore that issue?

[DaveF1006]

This sounds like you are a S-Corp.  Since S-Corp tax advice is out of scope for this service, I will send this IRS link for further instructions. 

[Raeka]

Yes, its a S-corp.

[ReneeM7122]

Yes, if the If the tree removal was necessary for overall safety of the house structure or the tenants, (power is part of safety), then it is an expense and can be reportable as a maintenance expense.

For more information, check IRS Pub 527.

@roaringbranch

@Raeka