Tax Research Paper
Date: October 25, 2012
From: Sladjana Vasic
To: Professor Raymond Placid
Re: AmeriSouth XXXII, LTD., et al. v. Commissioner, 67 T.C. Memo. (2012)
FACTS
AmeriSouth XXXII, Ltd. acquired the Garden House Apartments in Mesquite, Texas in 2003 for $10.25 million. According to its owner, Ruel Hamilton, AmeriSouth is a general partner in about 50 partnerships, and AmeriSouth Texas established AmeriSouth XXXII in 2003 to buy the aforementioned complex. The complex was constructed in 1970, sits on over 16 acres of land with more than 40 buildings. Mr. Hamilton also owns AmeriSouth Management, L.P., which is responsible for the maintenance of a portion of the complexes.
Roughly 70 of the 366 units are fully furnished. Even those units that are unfurnished are equipped with dishwashers are garbage disposals. The complex has the necessary infrastructure of sanitary sewers, water pipes, electric and gas lines. These run from the public street across from the property to the buildings.
When AmeriSouth purchased Garden House, they undertook a $2 million renovation of the units that replaced the cabinets, countertops, dishwashers, garbage disposals, vent hoods and kitchen sinks.
AmeriSouth hired MS Consultants to do a cost-segregation study. Although the AmeriSouth had originally listed Garden House as a 27.5 year property in its records, MS advised the company to depreciate some of the items replaced in the renovation (such as sinks, electrical wiring, outlets and paint) independently from the buildings they were attached to. AmeriSouth claimed that the water distribution, sanitary-sewer systems, gas lines and electric were eligible for 15 year depreciation, while many of the items replaced in the renovation were eligible for 5 year depreciation.
This would allow AmeriSouth to depreciate $3.4 million of the property over 5 or 15 years instead of 27.5, thereby increasing their depreciation deduction by roughly $397,000 in 2003, $640,000 in 2004, and $375,000 in
From: Sladjana Vasic
To: Professor Raymond Placid
Re: AmeriSouth XXXII, LTD., et al. v. Commissioner, 67 T.C. Memo. (2012)
FACTS
AmeriSouth XXXII, Ltd. acquired the Garden House Apartments in Mesquite, Texas in 2003 for $10.25 million. According to its owner, Ruel Hamilton, AmeriSouth is a general partner in about 50 partnerships, and AmeriSouth Texas established AmeriSouth XXXII in 2003 to buy the aforementioned complex. The complex was constructed in 1970, sits on over 16 acres of land with more than 40 buildings. Mr. Hamilton also owns AmeriSouth Management, L.P., which is responsible for the maintenance of a portion of the complexes.
Roughly 70 of the 366 units are fully furnished. Even those units that are unfurnished are equipped with dishwashers are garbage disposals. The complex has the necessary infrastructure of sanitary sewers, water pipes, electric and gas lines. These run from the public street across from the property to the buildings.
When AmeriSouth purchased Garden House, they undertook a $2 million renovation of the units that replaced the cabinets, countertops, dishwashers, garbage disposals, vent hoods and kitchen sinks.
AmeriSouth hired MS Consultants to do a cost-segregation study. Although the AmeriSouth had originally listed Garden House as a 27.5 year property in its records, MS advised the company to depreciate some of the items replaced in the renovation (such as sinks, electrical wiring, outlets and paint) independently from the buildings they were attached to. AmeriSouth claimed that the water distribution, sanitary-sewer systems, gas lines and electric were eligible for 15 year depreciation, while many of the items replaced in the renovation were eligible for 5 year depreciation.
This would allow AmeriSouth to depreciate $3.4 million of the property over 5 or 15 years instead of 27.5, thereby increasing their depreciation deduction by roughly $397,000 in 2003, $640,000 in 2004, and $375,000 in