Tax and and expense question

6 Replies

New member, I own a vacation property that we use every month. Just finished building an apartment above the garage to rent out to a long term tenant. I realize I will need to find a good CPA but can anyone explain if this can get expensed in any way (construction costs). Or does it just get depreciated? I guess my confusion has to do with it being part of the existing vacation home. Any thought would be greatly appreciated. Property is in Oregon if that matters. Thank you!

@Steve Schwartz

This is where the expertise of @Brandon Hall  comes in. I believe it gets depreciated because it is an improvement or major construction you are doing that will eventually appreciate the price of the property. You would have been able to write off the whole thing if the apartment was already there and you were just doing repairs and fixtures to bring it back to its rentable condition. Hopefully Brandon would see this and put in his much valuable 2cents.

Originally posted by @Steve Schwartz :

New member, I own a vacation property that we use every month. Just finished building an apartment above the garage to rent out to a long term tenant. I realize I will need to find a good CPA but can anyone explain if this can get expensed in any way (construction costs). Or does it just get depreciated? I guess my confusion has to do with it being part of the existing vacation home. Any thought would be greatly appreciated. Property is in Oregon if that matters. Thank you!

Steve, first of all, I know a great CPA in Bellevue, who specializes in Real estate. Please PM me for his details.

Do you rent out the vacation property as well? or is the main house just for your own personal use? If it is for your own personal use alone, then you will not be able to depreciate it. However there is a 15-day rule. Here is a link to a previous post by @Logan Allec CPA, who elaborates. (no need to rewrite it) https://www.biggerpockets.com/forums/51/topics/426197-depreciation-and-converting-a-vacation-home-to-a-rental 

732-333-1477

@Steve Schwartz Sounds like this is something you'll have to capitalize and depreciate, rather than expense. If it's any consolation, the benefits of expensing vs depreciating are only meaningful to those whose loss real estate tax write-offs aren't restricted by the passive loss limitations. That depends on (a) overall income and (b) the amount of passive income that an investor has. (The tax shield provided by real estate losses are maximized by growing your portfolio so that there are passive gains to be offset - at that point, contact @Yonah Weiss regarding cost segregation to maximize the tax write-offs.)

Bernard Reisz, CPA
1(888) 378-6639

What was the cost of the construction?

The answer to this question may indicate whether it falls under any exception to expense it in the current year.

Basit Siddiqi, CPA
917-280-8544

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