I have a few hypothetical scenarios about capital improvement.
Is removing a wall for personal taste and then tidying up the mess a capital improvement or a repair ? I mean you are subtracting material from the properties capital, that had an input cost. Then you are tidying up or repairing the wall with input capital of lesser cash value, than the value of material originally installed.
Any capital improvement then surely becomes perceptual, as technically you have actually subtracted from the capital material value of the property.
To further demonstrate this point somewhat conversely, say I knocked down all internal walls and removed the material from the premises and dumped it at the local tip. Then say I replaced all these walls with window sliding doors and blinds that actually cost more than the walls. Now perceptually, one could argue that we have now devalued the premises. Most of us would likely agree with that. Who wants sliding glass doors with blinds, as walls ? But then they cost more to install so I guess we have added capital inputs over capital outputs. You get the point. So where do we stand ?
I guess it comes to the question of what constitutes capital improvement ? is it the value of inputs contained within the buildings structure, or is it the market value as a result of change to the premises ?
Another example, say we completely demolished a smaller study with building fixtures, desk etc... that had an input current capital value of $6000 and spent $5,000 converting it into a larger extra bed room ( basically just 4 walls and a door ) . Now is that a capital improvement ? Some people like studies and some like bedrooms. Capital Inputs are now less than before. So what is it assessed on ?
1. intent ? i.e. desire to improve percieved value
2. inputs vs outputs ? i.e capital value of materials removed against materials installed.
3. results ? i.e. unit now rents for more or less as a direct result of the modification to the buildling structure regardless of cost
4. any combination of the above ?
5. none of the above ?
Just thought I would throw in a curly one for all you property accountants.
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Is removing a wall for personal taste and then tidying up the mess a capital improvement or a repair ? I mean you are subtracting material from the properties capital, that had an input cost. Then you are tidying up or repairing the wall with input capital of lesser cash value, than the value of material originally installed.
Any capital improvement then surely becomes perceptual, as technically you have actually subtracted from the capital material value of the property.
To further demonstrate this point somewhat conversely, say I knocked down all internal walls and removed the material from the premises and dumped it at the local tip. Then say I replaced all these walls with window sliding doors and blinds that actually cost more than the walls. Now perceptually, one could argue that we have now devalued the premises. Most of us would likely agree with that. Who wants sliding glass doors with blinds, as walls ? But then they cost more to install so I guess we have added capital inputs over capital outputs. You get the point. So where do we stand ?
I guess it comes to the question of what constitutes capital improvement ? is it the value of inputs contained within the buildings structure, or is it the market value as a result of change to the premises ?
Another example, say we completely demolished a smaller study with building fixtures, desk etc... that had an input current capital value of $6000 and spent $5,000 converting it into a larger extra bed room ( basically just 4 walls and a door ) . Now is that a capital improvement ? Some people like studies and some like bedrooms. Capital Inputs are now less than before. So what is it assessed on ?
1. intent ? i.e. desire to improve percieved value
2. inputs vs outputs ? i.e capital value of materials removed against materials installed.
3. results ? i.e. unit now rents for more or less as a direct result of the modification to the buildling structure regardless of cost
4. any combination of the above ?
5. none of the above ?
Just thought I would throw in a curly one for all you property accountants.
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