Are Renovations Tax Deductible
March 8th, 2010
Question: Tax on rental expenses – renovation or fixing?
I bought my first house in 2007 which me and my wife live in and rent out half of it. Before renting it out, we had it considerably renovated (new floors, paint, tiles, new kitchen cabinets, all new applicanes) even in the rental portion.
I know that my part of renovation will go into the basis (value of my house), but can I calim what I spent on the rental portion as a deductible expense? This was done before the tenants moved in. Also, I did have some repairs after the tenants moved in and requested them.
So, if I hired someone to do the floors and fix a broken sink, paint, repair a leaking pipe, for $10000, how do I divide that myself so as to claim a portion as expense and the other as improvement. IRS will accept my own estimates on this and not come after me in an audit?
I found the answer on www.irss.gov” If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement.”
Thanks guys.
Answer: The expenses of renovation for the rental portion go into the basis of the house which you will be depreciating on your tax return. Purchase price of house divided by the percentage that is rented, plus the cost of renovation to the rental portion equals the basis for depreciation. Repairs done while renting the property are rental expenses for maintenance and repair. Improvements are depreciated, repairs and maintenance expensed. The difference is that improvements increase the value of the property, repairs just maintain the property.
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