Depreciate Or Deduct
What do I do?? Depreciate or Deduct.
I just bought a house through a short sale.
I had to put in carpet, windows, bathrooms, siding, doors, and cabinets. This need to improve the tax value since all the items were damaged. The windows were broken, the air did not work, the vinyl was falling off, and the bathrooms did not work. Sinks were broken and the tubs were not connected to the sewer line..
Can I deduct the expenses or do I depreciate them??
The rehab costs are an adjustment to basis, not deductions.
I agree that there is a fine line between a repair and a capital improvement. Think of it this way, a repair fixes something that is broken. An improvment replaces something that is no long serviceable.
Within this context, if you replaced cabinets, doors, windows, carpets, and bathroom fixtures, you have made capital improvements. When you repaired the siding and broken window panes, painted, and reconnected the existing tubs, you made repairs.
To compound the confusion, the IRS tells us that when repairs are done as a necessary part of a major renovation, the entire project is a capital improvement.
Go back to your first post at the beginning of this thread. You, yourself, said that the "repairs" were needed "to improve the tax value." If you claim that the repairs were needed to increase the value of the property, then you have just made the case for calling what you did a capital improvement.
Why not take the facts and circumstances to your accountant and get his professional opinion?
If you did soon after your purchase then you add to the basis ( this is what you really paid for the property. sale price+rehab) and depreciate.
Single member LLCs are disregarded entities for tax purposes. So, there really is no income tax issue (possibly in community property states).
However, type of ownership (TIC vs. JT) can have huge consequences when it comes to legal issues & estate taxes. First you should define why you need LLCs in the first place and then, depending on that answer, consult an tax/property/estate attorney or CPA.