Rehab credit and taxes

General Real Estate Investing
1

Would appreciate any help on this one.

I have a 4 unit building that I am selling for 410k via my LLC. At that price, my profit would be 115k. Found a buyer willing to agree to that price, but would like the balcony on each unit redone. The estimate for the job is 30k.

Now, if I give him the 30k back as rehab credit, how would that affect my taxes on the profit from the sell? Would I be taxed for the 115k profit or 85k profit?

Would it be better to structure the contract so that my LLC would fix the balconies after receiving payment. Would I then be able to declare the 30k as expense, which would then again allow me to be taxed for 85k profit instead of 115k?

Thanks everyone.

2

It should not affect your taxes…you will either have a reduction in the selling price or an increase in your deductions as a capital improvement.

It would probably be easier just to credit the job to the sale (I would escrow the money so that you know the work gets done and doesn’t just get “absorbed”)…but the job may cost less and save you a few bucks…you can probably close more quickly with a credit, also.

My opinion – others may vary.

Keith

3

Thanks for the info keith. I doubled checked on the credit back option and it is definitely deducted from the sell price.