Renovation Costs Deductible?
I am getting conflicting advice on whether or not I can claim some of the $$$ we put out to renovating our 3 family brownstone. We upgraded electric , plumbing, redid the kitchens and bathes, and put in new windows and stairs. My previous tax guy told me to hold off from claiming the costs…
I am getting conflicting advice on whether or not I can claim some of the $$$ we put out to renovating our 3 family brownstone. We upgraded electric , plumbing, redid the kitchens and bathes, and put in new windows and stairs. My previous tax guy told me to hold off from claiming the costs until we had income from a tenant. Now that we have a tenant, my new tax guy is saying that we should have claimed last year and that the max allowed is $25,000.
Figuring out tax code always seems darkly mystical to me. Is there a site that gives general guidelines that a lay person can understand.
smeyer…I know there are many, I just illustrated two. I told the OP to go by advice of an accountant.
When someone gives an answer that I know for certain is wrong and steers the OP in the wrong direction, I’m going to call him out on it. I’ve been an investment property owner since 1985.
Your advice is actually wrong as “all the deductions” are not always prorated. Some can be applied in whole to the rental unit.
plain & simple: have a good CPA! it will save you a lot of money and headaches in the long run. as you see from the different posts many have different opinions and ideas on what should be done. some of them are incorrect….
We went through this. Our accountant was really clear and specific with us about different categories of expenses that mattered for and were accounted differently for tax purposes: reno costs solely attributed to the rental, solely to the owner’s portion, and costs to be pro rated. Repairs and other things that can be deducted in one year vs. costs that must be amortized. Insurance, utilities, etc. Doing a schedule E is necessary but not sufficient, you need to know that it is being done right to your maximum benefit under the law. If your acct can do this with confidence, great, if not, get a new one.
http://www.irs.gov/publications/p946/ar02.html#en_US_publink1000107773
here is the IRS form with depreciation schedules.
Also Dave you know the idea is to encourage people to post not insult them….even when both you and they are wrong.
The “normal” way to do it on mixed income and owner occupied is to put all the deductions in and than multiply it by the formula you are using for tax purposes….and there are many not just two.
Thanks. Things to research. Both “tax guys” are talking about putting on the schedule E. So at least that is something.
What’s your cost basis for building.. Purchase price + Improvements?
If your tax guy is saying that you can depreciate $25K, I’m guessing your basis is just over $1 million.
$25,000*27.5 years = $687500/.66 = $1.03 million.
I’m not sure that you can take depreciation expense for your portion of the house against rental income elsewhere in the house. Of course, anything you put in as capital improvements do increase your cost basis, so even if you can’t depreciate, it will reduce your “profit” and thus taxes owed when you sell.
Regards,
Michael Vinocur
Building Equity LLC
631-329-9972
mvinocur@buildingequitynyc.com
http://www.buildingequitynyc.com
Posted by: buildingequity at February 3, 2010 3:01 PM
WOW, you hold yourself out as being in the business and don’t know the answer?????? Amazing.
You can depreciate a prorata portion of the entire capital cost of the building (plus any subsequent capital improvements) according to a formula that best fits the situation.
Generally if you have a three storey building and one floor is a rental, you depreciate 1/3. You can do it by exact square footage or whatever your accountant advises but generally 1/3 is acceptable.
You cannot depreciate your portion against rental income or take repairs to your unit against it. repairs, etc to the common are can typically be pro rated.
As said by others, new electrical, etc. are capital improvements. If a building is income producing, you can depreciate the entire cost of the building over 29.5 years. Certain systems may be depreciable faster. I believe appliances can be depreciated over 7 years. However, if you are living in the house, I’m not sure that you can take depreciation expense for your portion of the house against rental income elsewhere in the house. Of course, anything you put in as capital improvements do increase your cost basis, so even if you can’t depreciate, it will reduce your “profit” and thus taxes owed when you sell.
Regards,
Michael Vinocur
Building Equity LLC
631-329-9972
mvinocur@buildingequitynyc.com
http://www.buildingequitynyc.com
isn’t there something special in the law this year to allow for immediate deduction of some capital expenditures? aren’t there special rules for energy upgrades?
I am not sure but there are so many rules that just don’t say no….you may not have all the facts.
The general rule on a house without tenants is that it is not deductible and that is both for repairs and capital improvements but all those do get added to the basis(keep good records).
For income producing property, repairs are tax deductible and capital repairs are depreciated and deductible over a period of time with some times a special allowance that allows an immediate deductions,
Mixed income and owner occupied housing have ways to apportion both.
There are sometimes special rules for energy efficient improvements.