No rental income this year, will I still be able to claim repair cost for tax deduction?
May 3rd, 2010I bought a rental condo (foreclosed property) in October, 2009 and will spend November and December to fix it up, so basically I don’t have any rental income this year. I wonder if I am able to claim the repair cost (~,000) for tax deduction.
Replys
I agree somewhat with CPA Guy, but to me, your repairs seem to be part of an improvement process. By that, I mean that everything taken as a whole is a capital improvement even if some of the parts are usually considered repairs. For example, painting a wall is usually a repair, but when you paint a wall after moving it, then the painting is considered as part of a capital improvement project. Without knowing the price, condition, and what work you are doing, I’m guessing, but to me $5,000 sounds like capital improvements.
Depreciation on the condo doesn’t start until it is available for renting. That means the day somebody could move into it.
A place to start for you to understand the tax implications is IRS Publication 527, available on the IRS web site at http://www.irs.gov/pub/irs-pdf/p527.pdf
If you are still confused, you should consider seeing a local tax professional before the end of this year. Take a copy of your 2008 tax return with you.
I hope this helps.
Gary
Addendum:
If the work you are doing is to make the home usable as a rental property, then not only should you capitalize those expenditures but also any interest paid on a loan until the home is ready for occupancy.
Yes, it is allowable. Remember though, there is a difference between a repair and an improvement. An improvement, by IRS definition, does at least 1 of 3 things: 1. Increase the value of the property, 2. Prolong the life of the property, or 3. Adapts it for a different use. If the work you’ve had done doesn’t fit any of the 3 criteria, then it is a repair and is tax deductible in the year that you’ve paid for the work.
If the work you’ve done does fit one of the 3 criteria, it is an improvement, and cannot be fully deducted in the year paid. You must capitalize it and depreciate it based on the classification of the improvement.
Let’s see, you bought in October and will make it available for rent in January. So it was NOT rented or available for rent in 2009.
Nope, you can’t claim the repairs on the schedule E.
I have been considering your question a second time
are these repairs something that had to be done to make the place habitable? this might have some bearing on when you can declare the expenses
and another thought, tho this isn’t what usually is considered a business, your renting is somewhat of a business and preopening expenses are allowed to be amortized over 5 yrs in the future, except for the past few years, a one time deduction of preopening expenses of $5000 are allowed businesses and why could this not also apply here? just thoughts
expenses are deductible in the year incurred. do not forget the depreciation for three months; real estate taxes and mortgage interest, and insurance+
The property has to be rentable to be deductible. However, the IRS will allow you to take those fix up expenses when it does become rentable. So you may have to take the deductions next year.
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