Writing Off DYI Labor????
If you own an investment property, and get maintenance, repairs etc.... done you are allowed to write off the costs of those repairs including the cost of the labor involved right??
I'm wondering if there is some provision that allows you to essentially bill yourself for tax purposes so that you can write off the cost of your labor????
thanks
Is the investment property in your name, a trust, or the name of a company? If you are doing the work what name is the work done under?
How can you bill yourself for tax purposes???
Even if you own the property in a corporation, if you bill yourself, the corp will have an expense, but your personal name will have to report the income.
Even if you could do it, which I'm pretty sure you can't, it would be self defeating. [ Edited by rentalman on Date 11/25/2003 ]
Can't you write the expense off based on average labor cost per hour even though you are doing the repairs? Your time is money the same as anybody else doing the job.
I don't think you can, but even if you did, you would have to show the compensation you are saying is an expense as income. After all, that's your argument. You "hired" yourself to do these repairs.
During an audit, the IRS would likely make the argument that since you did your own work rehabbing the property your company should have paid yourself as an employee (not contractor). They take more taxes from you this way.
This is the reason why I have two companies for rehab work...one that simply owns the company and one that arranges the rehab. I pay this management company a very small fee and pay the profit to myself as an employee. However, I take the bulk of my profit through the company that simply owns the property. Since there was no active labor needed for the company, the IRS has no need to question why I was not paid out as an employee. The management company pays me everything it has as an employee so the IRS can't ask for anything more than it has to pay!
This may be confusing. I don't entirely understand it myself since my tax stratagist helped me put together this one.
Taken from IRS Publication 535, Chapter 13:
"REPAIRS. The cost of repairing or improving property used in your trade or
business is either a deductible or capital expense. You can deduct repairs
that keep your property in a normal efficient operating condition, but
that do NOT add to its value or usefulness or appreciably lengthen its
life. If the repairs add to the value or usefulness of your property or
significantly increase its life, you must capitalize them. Although you
cannot deduct capital expenses as current expenses, you can usually deduct
them over a period of time as depreciation.
The cost of repairs includes the costs of labor, supplies, and certain
other items. You CANNOT deduct the value of your own labor."
I still agree with my post. You have to take a different standpoint on how you view real estate. That chapter simply does not apply here:
There are two types of businesses: ones that sell a product and ones that sell a service. The IRS does consider rehabbing an active trade or business! Which category do you fall into? Definatly the product. You are selling an inventory of properties! All costs associated with your property activity here falls under COST OF GOODS SOLD. You may have some office expenses or other small expenses but the bulk of the materials and labor are costs of goods sold.
By the way, Rentalman is correct in his post if we are talking about repairs made to a rental unit or other long-term hold. In this case the IRS does not consider this a business but rather an investment.[ Edited by myfrogger on Date 11/25/2003 ]