Rehab Tax ?
I have a few rentals but did my 1st rehab and have tax ?'s. I am selling this in less than 1 yr. Am I able to write any expenses off in 2004 or is it only used to reduce the profits from the sale which will occur in 2005?
Tx
Kelly
Rehabs are generally characterized as capital improvements. Capital improvement costs are added to your cost basis and recovered through depreciation. Unrecovered improvement costs reduce your taxable profit when you sell.
So if I rehabbed a property in 2004 and rented it out, but did not sell it, then the repair expenses are not deductible on my tax return for this year? Is that right, do I wait until the sale of the property in order to deduct the repair expenses? What if I don't sell it? How am I able to deduct those expenses. Also, will I need cancelled checks for the materials, or will store receipts be good enough?
Scott
So if I rehabbed a property in 2004 and rented it out, but did not sell it, then the repair expenses are not deductible on my tax return for this year? Is that right, do I wait until the sale of the property in order to deduct the repair expenses? What if I don't sell it? How am I able to deduct those expenses. Also, will I need cancelled checks for the materials, or will store receipts be good enough?
Scott
If it was actually rented, I would treat it as a rental, even if you sell it soon. Check out IRS publ 527 rental properties and 946 depreciation for info as to what to capitalize and depreciate and what to exense. Available at www.irs.gov.