$*******$

Scenario $3$: Repairs vs$.$ Improvements

A manufacturing facility undergoes a major renovation. Expenses include:

$$80,000$ to replace the roof $($original roof had a $20-$year estimated life$)$

$$30,000$ to repaint the entire interior

$$55,000$ to upgrade the electrical system to handle increased power needs.

Analyze:

Which expenses might qualify as repairs $($currently deductible$)$ vs$.$ improvements $($capitalized and depreciated$)?$

Explain the relevant tax concepts, such as betterment, restoration, and adaptation.

Scenario $4$: Depreciation and Net Operating Losses $($NOL$)$

A company purchased equipment for $$250,000$ in $2021.$ Depreciation is calculated using MACRS.

The company has significant operating losses in $2021$ and $2022,$ generating Net Operating Losses $($NOLs$)$ that can be carried forward.

Analyze:

How do depreciation deductions impact the amount of NOL generated each year?

How might utilizing the NOL carryforward in future years affect depreciation calculations, if the company becomes profitable?