Tax breaks on a gutted property

6 Replies

Hello Everyone!! Hey I need some tips on what to do or where to find info. IRS.gov wasn't that helpful. I purchased a gutted SFR in 2013. Didn't start rehab til 2014. Just now gonna file taxes for both years. Can anyone tell me how I get a tax advantage on a property that is not habitable?

Thanks, Rosie

Other than inflating your basis, thus affecting your ultimate NET 'flip income' or capital gain I do not see the IRS providing any further concessions. But we have done something a little different up here. By contacting the assessor we submitted the required documentation that ultimately reduced our tax assessment, in fact one went down by $39,000. 

Up here that does have a some effect on our annual property taxes ($58-$64/$1000) & its good for 5 years so it's great for re-sale. 

The condition of the property really doesn't matter to the IRS.

The fact that its not your primary residence is probably all that matter as that means its an investment property and deductions can be taken against it as such.

You really need to get a cpa to do your taxes right. But some of the things they are probably going to suggest you deduct are:

1) Any expenses related to the purchase - i.e. home inspection, etc, some financing costs depending on what type and how it was financed, appraisal, etc.
2) Insurance.
3) Property taxes.
4) Depreciation.
5) Interest expense (if you have a mortgage).
6) Utility bills.
7) Village permits
8) Rehab - labor and materials
If you're doing the work yourself, then you'll only be able to deduct the materials. But it adds up.

Again, this is all pretty typical of investment property deduction. Whether its vacant or not shouldn't change the deductions. I think the only thing that would is if you were personally living there. Then its no longer an investment property but a primary residence and you're entitled to deduct property taxes, interest and thats about it.

Again, check with a cpa on this though as I am not one nor would I make a good one if I were to try. :-)

There won't be any rehab deductions for your taxes.  If you're flipping, they will simply reduce your profit/income when you report it.  If you're going to rent it, it simply increas s your basis.   As others have said, a CPA is where to start.

Second that. That is bad advice. You can't deduct rehab. You have to capitalize it or add the basis. And didn't things are different. Some improvements are the standard 27.5 year, but carpet and water heaters can be capitalized. (At least that's what my accountant did for me) I'm not one, but certain you can't just show a 50k loss as "repair" when you gutted the place.

Additionally, depending on some factors it doesn't benefit you to deduct everything immediately anyway, especially if it was gutted all year and didn't show any income. Pay the $500-$800 and get them done right.

Thanks everyone. Yes I am going to have a CPA file my taxes but I was curious if there were any benefits I was not aware of. This property at this time has just cost me money and given me nothing in return :-(

Originally posted by @Rosie Vidales :

This property at this time has just cost me money and given me nothing in return :-(

 & that is why so many here will espouse the very appropriate cliche 

'the profit is made at the time of the buy'

good luck & keep us posted

you will make it!!

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