Improvements, Fix Up Expenses, and Repairs on commercial rental property

[jskouberdis]

Hello community,  

I have a question on the sale of a commercial rental property.  My client sold a commercial building that he rented to his corporations until they went out of business in 2021.  He sold the property in 2022.  Most of the time when there was an imrpovement done or a repair he would run them through his businesses they would take the expense or take the depreciation on the improvement.  Now that he sold the property it came to light that expenses that he paid personally in the last 30 years totalling $75,000 were never given to me.  These include improvements and repairs.  Can I add these as expenses of the sale now that he is selling the building or will the IRS say that these expenses and improvements should have been taken every year they occured in the past.  He never received any tax benefit from these expenses before.  Can he be denied taking them now.  Let me know what you think.

John Skouberdis

[TaxGuyBill · Accepted solution]

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@jskouberdis wrote:

Now that he sold the property it came to light that expenses that he paid personally in the last 30 years totalling $75,000 were never given to me. 

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Improvements add to Basis.  The depreciation that COULD have been taken lowers Basis, and the gain results in Unrecaptured Section 1250 Gain.  Use Form 3115 to 'catch up' on the missed depreciation.

Repairs from prior years can NOT be taken now.  They would need to be on an amended return.  But amending would only benefit if the repairs are within the last three years or if they result in increasing carryovers that flow to the current year (or within the last three years).

[jskouberdis]

Thanks for your reply.  I guess there is no way around it is what it sounds like.

John Skouberdis