Partially inherited house - bought out siblings - can i expense repairs

Partially inherited house - bought out siblings - can i expense repairs

El Cajon, CA · Member since 2014 · 1 post · 0 votes

back story - my two siblings and I inherited a house in January 2013. In August 2013 the Tenant moved out (they had been asking to be released early from their lease due to issues with the property). All the rent went into the Trust that my sister was executor for. The garage (same property) remained rented continuously to present. I started painting, repairing, replacing worn out fixtures etc... with my own funds. I discovered long term undetected plumbing, foundation, and window leaks (all of them, an installation issue from 25 years ago). The estate attorney assisted me in buying out my siblings interest, had the property taken out of the trust and put in my name, and I took out a 250k (cash out refi) mortgage out on the property, paid my sibling 208k GIFT and ended up putting 30k more into the repairs. I had a FOR RENT sign on the front fence during all of the repairs in hopes that a passer by or neighbor would be interested. I just kept on working until the tenants I eventually found moved in on january 15th 2014. So..... as it started as a simple Rental Turnover job, then morphed after the real damage began to reveal itself, then I bought my siblings out and took out the loan, and the repairs mounted and culminated in a new kitchen, flooring, lighting, appliances (the old were un-rentable/repairable) is it possible for me to treat some of the expenditures as repairs, maintenance, and 5 - 7 and 15 year depreciation on certain items, and just add the 27.5 year items to the cost basis. Is it possible to treat the job more as a tenant turn over rather than pre-rental expenses in light that the garage remained rented and the work was 90% due to damage from the moisture. Initially I was budgeting for about 10k in repairs until the discoveries kept coming. Any advice please. Thanks Joe

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  • Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    12y

    That's a @Steven Hamilton II question. Tax issues like this are like pornography. I know it when I see it. Sounds like I would just call it rental expenses... but I know @Steven Hamilton II (am I allowed to do 2 @s in a post, when most of the time one doesn't work anyway??) will know the real answer.

  • Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    12y

    @Cara Ocallaghan

    It seems that your property was continuously "in service as a rental" even though you had an extended vacancy while you accomplished a major renovation. The minor repairs that you did (painting, repairing, replacing worn out fixtures etc) just to keep the property in normal operating condition are deducted as rental repair or maintenance expenses on your Schedule E.

    However, once you embarked on the major overhaul -- "... plumbing, foundation, and window leaks ...culminated in a new kitchen, flooring, lighting, appliances (the old were un-rentable/repairable" -- you were no longer making repairs. You completed a capital improvement. The $30K that this cost you is recovered through depreciation; free standing appliances on a five year schedule everything else on a 27.5 year schedule. The IRS guidance here is that repairs done as part of a larger renovation project are aggregated into the renovation project and treated as a capital improvement which is depreciated (not expensed).

    Disclaimer: I am not a CPA, so please consult your own accountant for detailed guidance as it relates to your situation.

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