June 2023

CAPITAL EXPENSE... from page 14.

Question: I am repairing leaks in my roof. Can I charge this to the replacement fund? Guidance: My initial recommendation would be no. The roof itself will commonly qualify as a capital expendi ture for inclusion within the replacement fund. However, that does not mean that any expense related to the roof should be expensed to the reserve fund. It is important to remem ber that the projections included in the engineering study only reflect the actual replacement of the roof. It does not include repairs, or any other expenses, related to the exist ing roof. As such, charging these repairs to the replacement fund would take away monies that were previously saved for the future roof replacement. Depending on the extent of repairs needed, this could result in a significant shortfall when it comes time to complete a full roof replacement. Question: I am performing annual mainte nance on my HVAC system. Can I charge this to the replacement fund? Guidance: Similar to the guidance for the roof question above, the general recommendation is that this expense is

association. The report will include a description of each component’s age, quantity, original useful life, assessed remaining useful life, and current replacement costs. The second definition to understand is that of the term “capital improvement.” Most of the components included in the engineering study consist of capital assets. Capital assets or improvements are viewed as items that: 1. Represent a material replacement, upgrade, or enhancement 2. Is permanently affixed to the property or building, such that removal of the item would cause significant damage. Now that we have an understanding of some of the general underlying definitions and concepts surrounding the replacement fund and capital improvements, we can dive into some specific examples. a. which increases the value of the property b. extends the useful life of the component

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