Supplies vs Assets vs Repairs vs Maintenance

[Brandon Heimsoth]

I've asked a similar question before but need further direction.  In years past, I gave descriptions of expenses to my accountant and they figured it out for me.  This past year, they charged me for the categorization and it wasn't insignificant charging.  I've been adding more properties (which is a good thing) so they probably got to a point where they had to charge me.  So, I'd like to correctly categorize things for 2024.

Anyway...supplies vs assets.  As much as I read about it, the guidance seems so wishy-washy to me.  Below are just a few examples with my guess of category.  Can someone correct me if I'm out of line?  If you don't do work yourself, is labor to install categorized differently?  Does it really matter monetarily which category is used?  If it can be categorized in multiple categories, would one benefit me more than others tax-wise?  Thanks in advance.

Carpet - Asset
Vinyl Flooring - Asset?
New Toilet - Asset??
New vanity - Asset??
New Tub - Asset??
Plumber Labor for remodel - Maintenance?
Washer/Dryer/Stove/Refrigerator - Asset
New Baseboards/trim - Asset?
Doors - Asset?
Furnace/AC - Asset?
Paint - Supplies
Light Fixtures - Assets?
Fencing - Asset?
Lumber for deck remodel - Asset?
Roof replacement - maintenance?

[Ty Coutts]

Here's a breakdown based on your examples:

Carpet, Vinyl Flooring, New Toilet, New Vanity, New Tub: These items are typically considered assets because they are permanent improvements to the property that provide lasting benefits.

Plumber Labor for remodel: Labor costs for installation or repairs are generally categorized separately from materials. They are often classified as operating expenses or maintenance expenses rather than capital improvements (assets).

Washer/Dryer/Stove/Refrigerator: These are assets as they are considered durable goods that will benefit the property over an extended period.

New Baseboards/Trim, Doors: These are generally considered assets because they enhance the property's value and are not typically replaced frequently.

Furnace/AC: These are significant components of the property and are categorized as assets due to their long-term benefit.

Paint, Light Fixtures: These can be a bit nuanced. Generally, maintenance supplies like paint are categorized as supplies, while light fixtures can sometimes be categorized as assets if they are permanently installed.

Fencing, Lumber for deck remodel, Roof replacement: These are typically considered assets because they are substantial improvements to the property that enhance its value and longevity.

In terms of tax implications, categorizing expenses correctly can impact how they are treated for depreciation or immediate expensing under tax laws. Assets are typically depreciated over time, while supplies and maintenance expenses are deductible in the year they are incurred. Depreciation allows you to spread out the expense of assets over several years, reducing taxable income each year.

If you need further clarification, financing for your projects, or just have more questions please feel free to reach out to me directly.

[Alex Christian]

Wouldn't it be beneficial to pay for an hour of your cpa s time so they can guide you on how to categorize these things?

[John Underwood]

Anything $2500 or below can be deductible via de minimis safe harbor.

Higher expenses need to be capitalized.

You can also do a Cost Segragation Study to capitalize some items quicker based on life expectancy. 

Your CPA should be able to guide you how to categorize all your expenses so that you can do it correctly yourself.

https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations#:~:text=The%20de%20minimis%20safe%20harbor%20election%20eliminates%20the%20burden%20of,is%20properly%20deductible%20or%20capitalizable.

[Brandon Heimsoth]

Quote from @Alex Christian:

Wouldn't it be beneficial to pay for an hour of your cpa s time so they can guide you on how to categorize these things?

 I agree.  I need to do that.  I'm sure I would benefit from that.

[Brandon Heimsoth]

Quote from @Ty Coutts:

Here's a breakdown based on your examples:

Carpet, Vinyl Flooring, New Toilet, New Vanity, New Tub: These items are typically considered assets because they are permanent improvements to the property that provide lasting benefits.

Plumber Labor for remodel: Labor costs for installation or repairs are generally categorized separately from materials. They are often classified as operating expenses or maintenance expenses rather than capital improvements (assets).

Washer/Dryer/Stove/Refrigerator: These are assets as they are considered durable goods that will benefit the property over an extended period.

New Baseboards/Trim, Doors: These are generally considered assets because they enhance the property's value and are not typically replaced frequently.

Furnace/AC: These are significant components of the property and are categorized as assets due to their long-term benefit.

Paint, Light Fixtures: These can be a bit nuanced. Generally, maintenance supplies like paint are categorized as supplies, while light fixtures can sometimes be categorized as assets if they are permanently installed.

Fencing, Lumber for deck remodel, Roof replacement: These are typically considered assets because they are substantial improvements to the property that enhance its value and longevity.

In terms of tax implications, categorizing expenses correctly can impact how they are treated for depreciation or immediate expensing under tax laws. Assets are typically depreciated over time, while supplies and maintenance expenses are deductible in the year they are incurred. Depreciation allows you to spread out the expense of assets over several years, reducing taxable income each year.

If you need further clarification, financing for your projects, or just have more questions please feel free to reach out to me directly.

 Thank you so much for the detailed response.  That helps out a lot!

[Account Closed]

Quote from @Brandon Heimsoth:

Quote from @Alex Christian:

Wouldn't it be beneficial to pay for an hour of your cpa s time so they can guide you on how to categorize these things?

 I agree.  I need to do that.  I'm sure I would benefit from that.

 Taking it a step further, do they not do your book keeping as well so they can just do this for you? 

[Brandon Heimsoth]

Quote from @Account Closed:

Quote from @Brandon Heimsoth:

Quote from @Alex Christian:

Wouldn't it be beneficial to pay for an hour of your cpa s time so they can guide you on how to categorize these things?

 I agree.  I need to do that.  I'm sure I would benefit from that.

 Taking it a step further, do they not do your book keeping as well so they can just do this for you? 

 No, not yet.  That is the dream as I don't enjoy the book keeping.  With only 6 houses, I'm doing it myself.

[Account Closed]

Quote from @Brandon Heimsoth:

Quote from @Account Closed:

Quote from @Brandon Heimsoth:

Quote from @Alex Christian:

Wouldn't it be beneficial to pay for an hour of your cpa s time so they can guide you on how to categorize these things?

 I agree.  I need to do that.  I'm sure I would benefit from that.

 Taking it a step further, do they not do your book keeping as well so they can just do this for you? 

 No, not yet.  That is the dream as I don't enjoy the book keeping.  With only 6 houses, I'm doing it myself.

 Ahhh i see. One day forsure! 

[Michael Plaks]

Quote from @Brandon Heimsoth:

Anyway...supplies vs assets.  As much as I read about it, the guidance seems so wishy-washy to me.  Below are just a few examples

You know why the guidance is wishy-washy, using your word? Because so are the tax rules. Take those new baseboards/trim as an example. Was it a standalone one-off $800 job? It's maintenance or repairs. Was it a part of an $8,000 major rehab? Then it's merged into that rehab which is an asset. There is so much detail here, it would take hours to explain, and things will still not be completely clear. 

More so, each accountant has their own procedures and interpretations. I could (but not in a forum post) coach you how to categorize things for our firm, but guess what - your CPA may still want to change it to their preferences. Really the best thing would be to get your CPA coach you on what exactly they want.

BTW, the advice given to you on this thread by a lender and an investor is wrong. It looks helpful but it's just incorrect, both of their comments. Want tax advice - ask tax people. Want lending advice - ask lenders.

[Max Emory]

Quote from @Michael Plaks:

Quote from @Brandon Heimsoth:

Anyway...supplies vs assets.  As much as I read about it, the guidance seems so wishy-washy to me.  Below are just a few examples

You know why the guidance is wishy-washy, using your word? Because so are the tax rules. Take those new baseboards/trim as an example. Was it a standalone one-off $800 job? It's maintenance or repairs. Was it a part of an $8,000 major rehab? Then it's merged into that rehab which is an asset. There is so much detail here, it would take hours to explain, and things will still not be completely clear. 

More so, each accountant has their own procedures and interpretations. I could (but not in a forum post) coach you how to categorize things for our firm, but guess what - your CPA may still want to change it to their preferences. Really the best thing would be to get your CPA coach you on what exactly they want.

BTW, the advice given to you on this thread by a lender and an investor is wrong. It looks helpful but it's just incorrect, both of their comments. Want tax advice - ask tax people. Want lending advice - ask lenders.

@Brandon Heimsoth, this is why we charge what we charge to manage rentals at our bookkeeping firm haha. Some items can go either way depending on tax strategy to further complicate things.

Thanks for laying this out, @Michael Plaks.

[Simon W.]

Different accountants will do something different. You can always make it the best you can, but a CPA can reclassify it to see how they see fit. Another CPA can reverse all of that as well. It really all depends on the situation.

I personally do not like so many GL codes in COA.

If I am working on a client who has 250+ GL codes and another client with 50 GL Codes, the cost will be very different.

A lot of the times it is overkill with those GL Codes. Tax Accountants would simplify it even more. If you ever look at your tax returns on those schedules they have an even smaller list of categories.

When you have someone handling your books, you will be utilizing a bit more GL codes so you can have a better read on your financials on a month-to-month basis to see if you can make any changes. Detailed.

Tax Accountants/CPA look at it once a year to just see an overview of your books. Summary.