Property Management
A Texas property management company is managing an older building that needs extensive capital improvements. The cost of capital improvements (new roof, HVAC system) is typically handled differently from routine maintenance because:
ACapital improvements are expensed in the year they occur like all maintenance
BCapital improvements are capitalized and depreciated over their useful lives for tax and accounting purposes✓ Correct
CCapital improvements only affect a property's value for 1 year
DCapital improvements are paid by tenants under all lease types
Explanation
Capital improvements (new roof, HVAC systems, major renovations) extend the useful life or add value to the property and are capitalized (added to the asset's book value) rather than immediately expensed. They are then depreciated over their useful lives for accounting and tax purposes. Routine maintenance is expensed as incurred.
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