"repairs" Or "improvements" For Rehabs/flippers
I am trying to figure what is better, for tax purposes, when doing rehabs.
Should you classify the rehabbing as "repairs" and "improvements"??
I know that when referring to rentals...its better to classify them as repairs, but when its your primary residence, its better to classify as improvements.
I cannot find any info on what is better for rehabs/flippers.
Please Advise.
I does not really matter, since it all is part of the cost of goods sold (your cost basis).
You recognize your property expenses only when the property is sold.
In rehabbing it does not matter all money you put in the place is all tax deductable. Purchase price+rehab cost+holding cost=total cost. The total sale price-total rehab cost=gross profit. You will pay tax at short term capital gains rate.
MichaelChandler,
For the rehabber/flipper the rehab costs, holding costs, repair, maintenance and upkeep costs, utilities, taxes and insurance are not deductions.
They are additions to the cost basis. These costs are not business expenses on your tax return and thus not deductions, so it is misleading to say they are deductible.
DaveT,
If none of the above are deductions....what can you use to offset you basis???
Shouldn't the "repairs", taxes, insurance, payments, etc......offset your cost basis???
Please explain.
thanks
They are additions to the cost basis. By increasing your basis, your net taxable profit is reduced.