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
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.