Construction in Progress

[jskouberdis]

I have a question for the community.  I have a situation where for two years a client has been constructing a shopping center and I have been classifying everything as construction in progress and organization expenses.  In 2022 one of the 5 units that they are constructing was finished and rented out in June of 2022.  Can I start depreciating on some type of ratio say 20% or based on total square footage part of the construction in progress and the organization expenses or do I have to wait until all of the units are available for rent.  Hope to hear from the community on this subject.

[sjrcpa]

I think all of the Organization expenses can start to be amortized.

Yes you can start depreciating the unit that is placed in service and rented.

20% of total costs would be conservative, but maybe not enough. Were there build out costs for this unit? Are all units the same size? Doesn't the contract break cost own by unit?

[jskouberdis]

I will have to discuss how much of construction in progress would belong to completed unit with the company.  But in your opinion I can start amortizing all of the organization expenses from the date of the first rental?

[sjrcpa · Accepted solution]

From the date the first unit was ready to rent.

The organization expenses are for the business entity, not for building units.

[jskouberdis]

Thanks for your reply.  That makes sense about the organization expenses

[qbteachmt]

Not everything will be by sf or 20%. For instance, landscape, improvements, fence, parking lot, curbs, grading for runoff, might be half done to accommodate that unit being ready for business. You'll need to take it by asset type. Engineering and architecture will typically be a %. Furniture and fixtures are going to be specific to the unit. What you are looking for is indirect (common) and direct CIP. I find it helps to have separated this while in progress, where possible. Final build-out always seems to end up customized.

[jskouberdis]

Thanks for your reply