Tax on rental expenses - renovation or fixing?
January 28th, 2008 | by admin |Tax L asked:
I bought my first house in 2007 which me and my wife live in and rent out half of it. Before renting it out, we had it considerably renovated (new floors, paint, tiles, new kitchen cabinets, all new applicanes) even in the rental portion.
I know that my part of renovation will go into the basis (value of my house), but can I calim what I spent on the rental portion as a deductible expense? This was done before the tenants moved in. Also, I did have some repairs after the tenants moved in and requested them.
So, if I hired someone to do the floors and fix a broken sink, paint, repair a leaking pipe, for $10000, how do I divide that myself so as to claim a portion as expense and the other as improvement. IRS will accept my own estimates on this and not come after me in an audit?
I found the answer on www.irss.gov
I bought my first house in 2007 which me and my wife live in and rent out half of it. Before renting it out, we had it considerably renovated (new floors, paint, tiles, new kitchen cabinets, all new applicanes) even in the rental portion.
I know that my part of renovation will go into the basis (value of my house), but can I calim what I spent on the rental portion as a deductible expense? This was done before the tenants moved in. Also, I did have some repairs after the tenants moved in and requested them.
So, if I hired someone to do the floors and fix a broken sink, paint, repair a leaking pipe, for $10000, how do I divide that myself so as to claim a portion as expense and the other as improvement. IRS will accept my own estimates on this and not come after me in an audit?
I found the answer on www.irss.gov
” If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement.”
Thanks guys.
Question posted courtesy of: Thelma
3 Responses to “Tax on rental expenses - renovation or fixing?”
By Steve on Jan 30, 2008 | Reply
Anything that does not qualify as a capital improvement can be written off as repair expenses for the portion of the house that is being rented out. This includes the repairs made to make the property ready to rent
The capital improvements will be added to the cost basis of the house and depreciated.
Look up Schedule E on irs.gov.
By irongrama on Feb 1, 2008 | Reply
The expenses of renovation for the rental portion go into the basis of the house which you will be depreciating on your tax return. Purchase price of house divided by the percentage that is rented, plus the cost of renovation to the rental portion equals the basis for depreciation. Repairs done while renting the property are rental expenses for maintenance and repair. Improvements are depreciated, repairs and maintenance expensed. The difference is that improvements increase the value of the property, repairs just maintain the property.
By Judy on Feb 2, 2008 | Reply
Items like paint can be deducted for the rental portion of the house - and probably the appliances also. The new floors and kitchen cabinets would have to be added to the basis and depreciated for the rental portion.