Are Remodeling Expenses Tax Deductible When Renting a Property? |
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Are Remodeling Expenses Tax Deductible When Renting a Property?

By: Gregg Cohen, CEO, JWB Real Estate Companies
March 4, 2012

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There are several advantages that you have when you own one or more Florida rental properties. The ability to deduct certain expenses from your earned rental income is one of these advantages. The IRS classifies common real estate deductions into two popular categories. Knowing what expenses can be deducted and classified will help you as you file your upcoming tax return. Seeking professional tax help is always recommended, but learning as much as you can about the way that your rental income is taxed and reduced will help you become a smarter real estate investor. 

IRS Distinction Between Repairs and Improvements

Fixing broken windows, gutters or roof damage is considered general repairs that are made by every property owner. The actual expense incurred during the repair of these types of damage can be deduced from rental property earnings under IRS guidelines. There is a clear difference in the tax code when it comes to a repair or improvement. Only when repairs are used to fix something broken can the expense be deducted each year when preparing your taxes.

Improvements can be made to your property at anytime during a taxable year. Things such as upgrading to new windows, reshingling the roof, adding new doors or repainting the home are all classified as improvements under the current IRS codes. No deduction is available for improvements. Improvements must be included as part of the standard depriciation that is available each year. There are restrictions on the amount of years that you can deduct depreciation expenses from your rental property income.

Deprectiation Begins When Properties are Put Into Use

When a rental property or vacation home is purchased, it may or may not be in the condition that is defined as ready for use. Appliances, general repairs or other upgrades might need to be delivered or completed before a property is ready to rent. A property that is purchased in December of one year and rented in January cannot be depreciated for the previous month of December. The IRS has strict rules about properties that are and are not put into use during a taxable year.

The exclusion to this rule happens when upgrades are made after a tenant lease has expired. It is common to have work completed on a rental property or vacation home after a tenant leaves. Even if the property is vacant for extended periods of time, depreciation expense can still be taken. This is known as an idle property. The depreciation expense can no longer be taken when the amount of depreciation has reached the total cost paid for the property. Knowing when to deduct repair expenses and when to deduct depreciation can save you a lot of money and headaches when completing your annual tax return.

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