easy rehabber tax questions - Posted by Luke

Posted by Dave T on January 30, 2002 at 15:56:18:

I am not an expert, but my opinion is that rehab costs are just added to your cost basis for the property.

The rehab costs are recovered from your profit when you sell the property, or, as depreciation when you place the property in service as a rental.

easy rehabber tax questions - Posted by Luke

Posted by Luke on January 30, 2002 at 14:13:51:

Ok folks, in the middle of my first rehab project, and I have expenses from last year, but have yet to realize a profit from the rehab yet.

A) What tax form do I use? I’m using TurboTax, but it didn’t seem to lead to towards the right “interview questions”.

B) Do I need anything other than the paid invoices from the workers?

C) Generally, what are and what are not expenses you can deduct?

Many thanks,

Luke

Re: easy rehabber tax questions - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on January 30, 2002 at 21:18:07:

Luke-------------

You don’t deduct repair costs. You add them to the cost basis, as Dave T pointed out.

When you sell the property, you will have to pay ordinary income taxes on the gain–the difference between the basis and the net selling price, after deducting the expenses of the sale. This is for a quick turnover property.

If instead you hold as a rental property, Dave T is again right: you increase the basis for the property. This thus increases how much depreciation you can take. If it is residental income property, you depreciate over 27.5 years. This goes onto your depreciation work sheet.

When you hold for the long term, you can deduct all the operating expenses. You look at the schedule E and you can see what these are. Taxes, insurance, legal advice, cleaning, repairs, copying, interest on any mortgage loan secured by the property, depreciation, etc.

Good Investing*******Ron Starr***********

Re: easy rehabber tax questions - Posted by Becky IL

Posted by Becky IL on January 30, 2002 at 16:09:48:

Dave,

Post this on the Legal Forum - you’ll get better results there.