Tax, Legal Issues, Contracts, Self-Directed IRA

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Write Off Entirety of New Construction?

Posted Jul 6 2022, 07:41

Hey Everyone,

I'm a young business owner and have made a good amount of money this year. I'm looking at reinvesting this money into real estate in a way that provides a substantial tax write off.

I am very interested in constructing a new, short-term rental tiny home. I wanted to know - is it possible to take out a construction loan and write off the new construction costs to lower taxes for my business this year? I know that typical purchase of real estate is written off as yearly depreciation, but can I write off all the new construction costs at one time?

Thanks for the help!

Western NC, North Carolina

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Simon W.
  • Financial Advisor
  • Lehigh Valley PA & New York City
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Simon W.
  • Financial Advisor
  • Lehigh Valley PA & New York City
Replied Jul 6 2022, 10:23

It really depend on what you are doing with the new construction. Are you holding or are you flipping?

I will give you a brief answer without knowing the answer.

If you are renting, you won't be able to write off all of it. You will be able to write off some of it as it would be depreciation on the renovation.

If you are flipping, you won't be able to write off any of it until you actually sell it out and it would be an operating income/expense vs a capital improvement.

I am sure there's more to it and maybe other BPers can chime in.

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Basit Siddiqi
  • Accountant
  • New York, NY
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Basit Siddiqi
  • Accountant
  • New York, NY
Replied Jul 8 2022, 10:10

You normally can't write off 100% of the purchase of real estate property or new construction.

There are some businesses that you can purchase that can give you a high percentage of depreciation based on the purchase price.