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Real estate expenses


austin3515

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Where on Schedule H would these expenses be included? They include an appraisal and maintenance/landscaping. Nothing in the Plan seems spot-on. It doesn't seem to fit into the description "appreciation/depreciation" but doesn't really feel like an expense either.

As a pre-emptive disclosure, this is in the context of a large pooled plan, and real estate makes up less than 5% of plan assets. And its being leased to an unrelated tenant.

Austin Powers, CPA, QPA, ERPA

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That would appear to be an expense of the investment; and should reduce the return on the investment. For instance, if the property is valued at "X", then the price of landscaping and maintenance should be reflected in that value. You would presume that the value would be less without it. That wouldn't necessarily reflect on the plan's report; except as a transfer to that investment from cash.

That's is how I would treat it.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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My suggestions, for what they are worth:

Are the appraisal fees paid directly by the plan? The maintenance/landscaping costs? If not actually paid by the plan, it would not be reported as an expense on the Schedule H at all. If paid from rent revenue (for example), the net rent would be what's reported, not the gross. So maybe the hit is on item 2(b)(3) (rent income). I don't think that investment-related expenses of any sort really belong in realized or unrealized gains or losses, even if the expense is related to keeping the value from declining.

If they are paid from the plan, it's probably a matter of practice (what does the plan's accountant think?), but I would lean towards item 2(i)(4) ("other"), unless you think that it should be shown as "professional fees" (2(i)(1)). Maybe show the appraisal as professional fees and put the landscaping in other (unless they are REALLY good landscapers). Or perhaps put the maintenance and landscaping into 2(i)(3) (investment advisory and management fees), but while the maintenance and landscaping costs are related to management of the investment, I don't think that is what people usually mean by investment management fees.

Always check with your actuary first!

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Why wouldn't it go in Other Administrative Expenses? I think if the real esate is directly owned by the plan (rather than through an LLC, for example), the expenses should not be netted against income from the property.

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The 5500 Preparer's Manual (for 2009 - I don't buy it every year) says valuations or appraisals go under administrative expenses/professional fees. I'd put the landscaping under "other" - the Manual says to include "...expenses associated with the ownership of a building used in the operation of the plan" (my emphasis) so that's not exactly on point but...it doesn't fit anywhere else, so, the last time I checked, that's pretty much the definition of "other."

It's definitely not appreciation/depreciation.

Ed Snyder

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