Backyard Renovations
The apartment we just bought has a garden level rental. The garden right now is a jungle. The bottom rental will have access to the garden. My question is, can write off the income we get from the rental by using the money to renovate the garden?
The apartment we just bought has a garden level rental.
The garden right now is a jungle.
The bottom rental will have access to the garden.
My question is, can write off the income we get from the rental by using the money to renovate the garden?
The income you earn from renting the apartment is taxable. If you get more rent for an apartment with garden access, your taxable income and tax will be higher. To determine your taxable rental income you subtract expenses such as the apartment’s share of heat, water, electric, etc. that you pay. You also subtract any depreciation on capital expenditures related tot he rental.
If you improve a portion of the property that the renter has access to, you can depreciate (and deduct) that improvement according to current tax rules. If the renter has sole access to the garden, 100% of the expense will qualify (as it would if you renovated their bathroom). If you and the renter will share access, then you will probably only depreciate a portion of the renovation expense, on the advice of your accountant. 50% sounds reasonable for shared access. This would also apply to any other shared facility, such as a laundry room you put in the basement and allow the tenant to use.
The fact that you may use some of the rental income to make the improvements isn’t relevant here and doesn’t change the answer.
If you have sole access to the garden, you may be out of luck. In my case, say I spent 10k on the garden and cleanup; this was split 50%. 5k was improvements to the rental property and deducted from income.
A cautious accountant might say that mine was capital improvement, in which case it has to be depreciated (say 15 years) so I could only deduct abt. 333/yr.
A creative accountant might claim that *your tenants* derive visual pleasure from the garden so you can allot some % as improvements… 😉
But the OP said the apartment would have access to the garden. Apartments with garden access earn more rental income than without garden access, especially when the garden is cleaned up and nice. I’d definitely think the OP could write off at least a portion of the money spent improving the garden. I used to have a home office in my house in CA and my accountant there wrote off a portion of my yard maintenance because of it. So I know it’s something that’s done.
I am not an accountant and am still trying to figure it out (accountants feel free to step in)
But this is how I see it.
You receive rent for the apartment with the garden access, and you pay tax on that income. Lets say $12K a year
But, you make capital improvements to the bottom floor apt garden. Therefore it is a capital improvement expense, lets say $6K.
You should only pay taxes on a “yet to be confirmed %” of the $12K.
If you’re living on the ground floor and your tenants don’t have access to the garden, I’m not sure if you could write any of it off.
can you please explain the details of how this is a write off? I’m planning on living on the ground floor and having sole access to the garden, but not sure how one is able to write it off as mentioned above…
In our case, we share the garden (theoretially, in reality since we have a deck we rarely go down) so we wrote off 50%. If you don’t have access at all, can probably claim it’s an amenity for the renter alone.
Iae, it’s not a direct transfer of funds; the garden improvement is probably a capital improvement and will be depreciated (over 15 yrs?)