Can I deduct improvements made on my rental property if I work with a property manager or only if I manage?
Saturday, January 29th, 2011 at
10:37 am
I am planning to rent out my house. I have made considerable renovations to the property. I was told that I could write these home improvements off when my house becomes a rental prop. What I am not clear on is whether I can write things off if I am working with a property management company or if I must manage the property myself. I am not sure if there is a difference.
I would appreciate any clarification on this from people in the know! I want to be assured that I can write off these improvements, as it exceeds $25,000 at this point. Thanks.
Passive Income
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Tagged with: Clarification On • House Renovations • Rent House • Rental Property
Filed under: property renovation
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The management thing is a moot point. In fact, if you pay a property manager that could be written off too.
Anything related to the property that is an expense is deducted. … just like a business would deduct the cost of emplyees, office supplies, etc.
The “write off” is generally only deducted from the income of the property and not your regular income.
As long as you own the house and receive the income you can deprecate your house. The deprecation would be based on the deprecatable basis in your house. You will figure this out by taking the purchase price of the house plus the cost of improvements (do not add the value of your own labor) minus the part of the cost the pertains to land (land never wears out so it can not be deprecated).
You can deduct the basis over 27.5 years using the IRS’s Straight Line, Mid-Month method.
As a note, if you own in your house for 2 out of the last 5 years and lived in your house for 2 out of the last 5 years you can exempt profit you made on the sale of the house from income taxes except for the deprecation that was or should have been claimed (subject to the maximum tax rate of 25%). If you did not own or live in your house for 2 out of the last 5 years than the entire gain on the house will be taxable.
I suggest reading Publication 527 for more information on Rental properties.