I am in the process of a rehab. What rehab costs need to be capitalized (not fully deducted in the same year?) Also, how many years do these capital improvements need to be deducted over? Thanks in advance
I assume you are rehabbing a residential property you plan to hold for rental income.
If so, then all your rehab costs are added to your cost basis. Or to say it another way, none of your rehab costs are expenses; instead, they are capital improvements. When you place the property in service as a rental, your depreciation basis is recovered over 27.5 years.
Quote:all expenses need to be depreciated over 27.5 years? even something like a new washer, dryer or flooring?No, just the rehab/renovation costs are added to your basis. The washer and dryer are not part of the permanent fixtures of the property and therefore not considered a component of the rehab. On the other hand, replacing the central air system would be included in your rehab cost because it is part of the structure of the property.
The washer and dryer you provide for your renter's use are personal property and depreciated on their own schedule.
Often I purchase property with kitchen applicances already installed. The range and refrigerator are also considered personal property (not fixtures) and could be depreciated separately. I don't choose to do so because the FMV of these appliances is often too low to make it worthwhile. I just wait until I replace these items, then depreciate the new appliances.
I assume you are rehabbing a residential property you plan to hold for rental income.
If so, then all your rehab costs are added to your cost basis. Or to say it another way, none of your rehab costs are expenses; instead, they are capital improvements. When you place the property in service as a rental, your depreciation basis is recovered over 27.5 years.
all expenses need to be depreciated over 27.5 years? even something like a new washer, dryer or flooring?
Different items can be on a different schedule.
The 27.5 was for the structure. Appliances many times have a shorter life and can be on a shorter schedule.
John
[addsig]
Quote:all expenses need to be depreciated over 27.5 years? even something like a new washer, dryer or flooring?No, just the rehab/renovation costs are added to your basis. The washer and dryer are not part of the permanent fixtures of the property and therefore not considered a component of the rehab. On the other hand, replacing the central air system would be included in your rehab cost because it is part of the structure of the property.
The washer and dryer you provide for your renter's use are personal property and depreciated on their own schedule.
Often I purchase property with kitchen applicances already installed. The range and refrigerator are also considered personal property (not fixtures) and could be depreciated separately. I don't choose to do so because the FMV of these appliances is often too low to make it worthwhile. I just wait until I replace these items, then depreciate the new appliances.