Repair Fund ?
I posted this in the tax forum but got no response so I'll try here:
Ok Here goes:
Bought a fixer upper 29Jan04 for 31,000. HML gave me 6,000 of repair money for escrow and I put in 7,000 of my own money. I plan on doing 2 more this year. My question is when I go to do taxes next year, can I claim all of the repair cost as a loss, only the portion that actually came out of my pocket or none of it? It seems thats the IRS would be throwing red flags up after you do this a couple of years because you are always "claiming a loss:. Even though I would be getting my money back on a refi loan.
Thanks,
Tim
you have to look if they were expenses or capital improvement.
expenses can be taken in the yr. they occured (assuming accrual accounting). Capital inprovements such as roof, carpet, etc. need to be depreciated over the life of the item.
From your question, do I assume that you are planning to hold the property for rental income?
If this is so, then you do not have any deductible repair expenses until you place the property in service. Until then, all your fixup/rehab costs are an adjustment to the basis. Even repair items that are normally expenses when your property is already in service, become capital improvemnts when accomplished as part of a larger renovation project.
If you are planning to flip the property, then all your acquisition, fixup, holding, and selling expenses are included in the cost of goods sold (your basis) when you sell the property.
At least, this is how my tax advisor sees it.[ Edited by NewKidinTown on Date 06/01/2004 ]
The repairs I did were:
New Central Heat and Air, Carpet, Upgraded electric service, all new plumbing fixtures, new cabinets, new doors, new paint, fence installed, repaired broken windows. So would the carpet, AC, and electric service be depreciated over the alloted period and the rest claimed next year?
Thanks,
Tim
Thanks,
New Kid. That explained it.
Tim