painting

Started by BonnieG1 • 11 replies • 1712 views

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BonnieG1 (Nebraska)
Posts: 1,186

Posted:

I think that painting our hallways in our condominium of 43 units is considered capital improvement. Am I correct. I am quite certain that painting the outside of our building is considered capital improvement.

JeffR7 (California)
Posts: 251

Posted:

Painting is considered maintenance, not capital improvement. Capital improvement is something that we increase property value, while painting is required to maintain value.

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Quote:

Posted By BonnieG1 on 10/28/2011 5:42 PM
I think that painting our hallways in our condominium of 43 units is considered capital improvement. Am I correct. I am quite certain that painting the outside of our building is considered capital improvement.

It doesn't matter whether it's inside or outside, anything that is done to maintain value (such as painting, or any repair or maintenance) is not a capital improvement.

Capital improvements always ADD TO or INCREASE value. Paving a previously unpaved driveway would be a capital improvement. Repaving a previously paved driveway is not a capital improvement. Similarly, repainting a previously painted wall or structure is not a capital improvement.

TimB4 (Tennessee)
Posts: 21,047

Posted:

Bonnie,

Are you asking because your unsure of where the funds should come from (Reserve vs Operating account) or because people wanted a vote on the color of paint?

CarolR11 (Colorado)
Posts: 2,563

Posted:

I agree with the others-- it's maintenance. In our HOA, it comes out of reserves where funds have been specifically set aside for interior painting.

BonnieG1 (Nebraska)
Posts: 1,186

Posted:

Quote:

Posted By TimB4 on 10/29/2011 6:38 AM
Bonnie,

Are you asking because your unsure of where the funds should come from (Reserve vs Operating account) or because people wanted a vote on the color of paint?

I am unsure of where the funds should come from. Painting has not even been mentioned in a Board meeting yet. Our new and actively involved owner is the one who mentioned it to me. She keeps telling Board members We need to do this in the spring, We need to do this etc. She has been a help.
I talked to her last night, thanked her for what she did, then showed her our documents where it states any owner is to get written Board approval before doing the type of things she has been doing. I just advised her she needed to follow proper procedures. Our President has not been able to get her to folow procedures, so I was told I could talk to her.
Painting is needed (but right now we have more pressing issues )and will probably be mentioned at a meeting next year.

I thought reserves could be used to replace furnaces, air conditioners, roofs, etc. according to the definitions I am receiving those are not capital improvements either.

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Quote:

Posted By BonnieG1 on 10/29/2011 10:30 AM
I thought reserves could be used to replace furnaces, air conditioners, roofs, etc. according to the definitions I am receiving those are not capital improvements either.

Bonnie,

Exactly. Although reserves CAN be used for capital improvements, they are more commonly used for repair and maintenance of capital assets, as opposed to operating funds which are used for annually recurring expenses, such as insurance, utilities, lawn care, etc.

Reserve funds are commonly used for repair and maintenance of items with useful life spans of several years. It's a way of saving for future large expenses, such as roof replacement, road repaving, furnace, A/C, water heater repair or replacement, etc. Reserves are used when such maintenance is needed, but these are not capital improvements.

DavidW5 (North Carolina)
Posts: 565

Posted:

Although I cannot cite the reference at the moment, I'm sure that I read an IRS revenue ruling or some such similar document that made clear that painting in NOT an acceptable use of reserve funds. Perhaps someone else here knows where this can be found.

CarolR11 (Colorado)
Posts: 2,563

Posted:

Whoops, I partially was incorrect in my 1st reply. Our onsite Assist. engineer paints a lot of our interior rooms, e.g, lounges, the gym & dressing rooms, our few offices, mailrooms, etc. and his supplies, $5,000, are a part of our annual operating budget. These rooms don't require entirely new paint very often. He constantly is touching up paint though.

In reserves with the est. remaining life, etc., are other interior jobs, e.g., the entire underground garage areas, the garage floors, the four 25-story stairwells. We also have reserve lines for various types of exterior painting including the two towers, which require swing stages, etc., a large system of steel fencing, rails, etc. These are all put out for bid and done by outside vendors.

I hope we're in compliance with IRS, David!

(Our residential corridors are wallpapered and there's a reserve line to replace it.)

BonnieG1 (Nebraska)
Posts: 1,186

Posted:

thanks for all your replies. From what I have read on this forum and other places it seems that the main reason to distinquish capital expenses from other types of expenses is for tax purposes. Since we are non profit, the only taxes we pay are the interest on our CD's.

Since we are non profit could we use the reserves for anything as long as we kept the legally required amount in the reserves?

JeffR7 (California)
Posts: 251

Posted:

IRS wouldn't have an opinion on what funds expenses are coming from. IRS doesn't regulate how association's funds are accumulated or spent. It's just not something they do.

Have you ever done a reserve study for your association? In CA it's a requirement to have one done every year with a complete study done every three years.

It's up to the association to include certain things in their reserve fund or operating fund. If you are doing continues upkeep and touch paint or paint your area regularly it belongs in an operating funds, if, however, you paint your entire building every so many years it needs to be in your reserves.

DavidW5 (North Carolina)
Posts: 565

Posted:

Quote:

Posted By DavidW5 on 10/29/2011 11:40 AM
Although I cannot cite the reference at the moment, I'm sure that I read an IRS revenue ruling or some such similar document that made clear that painting in NOT an acceptable use of reserve funds. Perhaps someone else here knows where this can be found.

I finally came across the citation:

Several court cases and
rulings have specifically stated that painting is not of a capital nature (e.g., Rev. Rul. 75-370, 1975-2 CB 25; Vera M. Walker, TC Memo 1992-416).

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