Single Family Fiscal Year 2023 Capitalizing vs Deducting

Member since 2021 · 2 posts · 1 vote

Looking for a little help on the schedule E for Fiscal Year 2023. I and a partner are trying to figure out this best way to handle taxes for 2023. 3 units are being renovated currently, how do we know what cost should be capitalized and what cost should be taken as a current year deduction for 2023? Looking at about 70k in cost for a full rehab - from concrete slabs to carpentry. Is it bad to just capitalize all the cost? What is the process for taking as much as possible as a current year deduction.

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Angel Maldonado
Accountant · TX · Member since 2023 · 2 posts · 0 votes
2y
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Angel Maldonado
Accountant · Dallas, TX · Member since 2020 · 22 posts · 3 votes
2y
Hi RJ,

There is some nuance that goes into determining capitalizing vs expensing expenditures. As a general rule, any item that is an improvement to the property (new windows, roof, sidewalk) would be capitalized and items that are more short term in nature would be expensed (plumbing or HVAC repairs, paint, etc).

Of course, there are times when plumbing, HVAC or paint might be appropriately capitalized so this is where some judgement must be exercised. Think of it more as property improvements (capitalize) versus repairs and maintenance (expense).

Capitalizing all costs will limit your deduction to 80% of the total, in the example you provided that would be a deduction of $56k. In order to maximize your current year deduction you would expense each item that is eligible (full deduction) then depreciate the remaining items that would need to be capitalized (80% deduction).

You can make a tax election to expense items below a certain dollar value that would otherwise be capitalized, this will allow you the full deduction for that item. You might consider speaking to your tax professional about this.

I hope this helps!
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Sammy Habbaz
Accountant · NY · Member since 2021 · 15 posts · 11 votes
2y
Quote from @Rj Sayler:

Looking for a little help on the schedule E for Fiscal Year 2023. I and a partner are trying to figure out this best way to handle taxes for 2023. 3 units are being renovated currently, how do we know what cost should be capitalized and what cost should be taken as a current year deduction for 2023? Looking at about 70k in cost for a full rehab - from concrete slabs to carpentry. Is it bad to just capitalize all the cost? What is the process for taking as much as possible as a current year deduction.

3 units out of how many?
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
2y
Ask for a scope of work to see what the $70,000 is for.
Then determine what portion is eligible for depeciation over 27.5 years and what is eligible for immediate write off / bonus depreciation.

Have a chat with a CPA if you are unsure.
[email protected]917-280-8544
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