Tax Time... need input

General Real Estate Investing
1

Naturally, I will also be consulting with my accountant, but wanted to get some feedback.

In particular, I’m trying to determine what is considered REPAIR vs RENOVATION. As I understand it, REPAIRS are deductible now and RENOVATIONS are deductible over time?

Here’s a list of some of the things I have done. What can be labeled as REPAIRS?

Also, since this is my first year of ownership and it’s only been a couple of months… I certainly don’t have any income to speak of. If a lot of this is called REPAIRS, can I carry over the loss to subsequent years to offset income next year or the one after?

Thanks for any feedback. I like to be armed with some info before I sit with my accountant.

  • new plywood on roof

  • new roof shingles

  • replaced some gutters

  • new electric meters

  • some new internal wiring

  • removed multiple layers of paneling and replaced with drywall

  • removed drop ceilings and replaced with drywall

  • gutted bathroom and kitchen and rebuilt

  • removed tub surround and installed tile

  • remove old carpet and replace

  • remove old trim and replace

  • clean out basement (all labor)

2

what are you doing with the house? If you’re selling it as a flip, it doesn’t matter: call it all “increases to basis” which is deducted from the sales price to determine income.

If you’re holding it as a rental, I’d make the argument that everything is a repair except the kitchen/bath and roof. And if the roof was less than a full roof, then I’d call that a repair, too.

3

Mark,

If the roof was bad, could the new roofing plywood be considered a repair?

Keith

4

might have been only part of the roof.

5

This is a hold for long term rental.

On 95 percent, there was no roof sheathing. Just shingles over these large planks… that had like 2 to 4 in gaps between them.

There were several leaks.

So the shingles were removed and sheathing put on the area that did not have any plywood… and the whole roof re-shingled.

Not sure if that helps?

Also… any input on the carry over part of the question? If I make most or all of this a repair, but have no income… what happens?

6

TJProps,

If you are flipping the property, all your costs are accrued and included in the “Cost of Goods Sold” when you report the sale of this property on Schedule C.

Your question only makes sense if you are planning to hold this property as a rental. For your rental property, the IRS tells us that when you have a major project which is comprised of a lot of repairs, you have to aggregate all the repairs into a single renovation project.

This seems to be the case in your example, from the information you have given. All of your rehab costs will be deemed by the IRS to be a capital improvement which must be capitalized and recovered through depreciation.

Here is the exact language from IRS Pub 527, page 3
If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement.

7

hmmm… that doesn’t sound like what I wanted to hear

:cry:

thanks for that info

8

Let us know what your accountant says.

9

Will do.

My guess is that it will depend on how I present the repairs/renovations.

That IRS quote is pretty clear though.

10

The IRS auditor will not care how you “presented” the repairs and renovation to your CPA. If you don’t give your CPA all the material facts how do you hope to get an accurate determination?

11

I think you read more into my statement than I meant.

I didn’t mean to imply I was going to skew the facts.

The more I think about it, I’m not so sure that having all this work simply added to my cost basis is not a good thing.