Ask the tax adviser
Writing off rental repairs
Dear Tax Talk:
I recently purchased a home out of state. I intend to rent it for
two years, then retire and move into it. While it is a rental property
before I move in and make it my residence, is there any tax benefit
from making numerous repairs and remodeling the house?
Normally, when you rent out a piece of property you can claim the
associated expenses as a deduction against rental income.
Most rentals generate tax losses that can be used
to offset other income from salaries and such if your adjusted gross
income is no more than $150,000. If you exceed the income limit,
these losses are carried forward until you can utilize them either
by a drop in income such as at retirement or the sale of the property.
Repairs such as painting, fixing leaks and flooring
are not required to be capitalized and depreciated unless they are
in connection with an overall plan of remodeling the home. Therefore,
repairs can be deducted against current income.
Extensive remodeling such as overhauling kitchens
and bathrooms or roofing are required to be depreciated. Since the
recovery of these costs varies from five to 27 years, you may not
get a lot of benefit for these expenses. More information on depreciation
of improvements and expensing of repairs is available in Internal
Revenue Service Publication 527.
An overriding consideration in claiming net losses
from the rental activity is if the activity is engaged in for profit.
Since your intention is to ultimately use the property as your retirement
home, the IRS could claim that the net losses are not allowable
as the rental is not engaged in for profit. You should weigh this
consideration with your accountant.
-- Posted: May 13, 2003