Year end rental expenses; purchase now or later?

Question

My back tenant will be moving out in the next 2-3 months. I have a lot of repairs I will need to do in his unit. Would it be advisable or legal to purchase the material now before the end of the year so that I can write it off for my 2016 taxes, as opposed to waiting an entire year until 2017 taxes?

I am looking to spend roughly $3-5k on everything from tile, fans, blinds, door locks, kitchen cabinets, oven, fridge etc.

Thanks for your advice!

I am looking to spend roughly $3-5k on everything from tile, fans, blinds, door locks, kitchen cabinets, oven, fridge etc.

Thanks for your advice!

Jake Hottenrott · Answer

@Mark Stone - I'd love to give you exact advice, but without knowing your specific situation, it depends.  There are a myriad of questions to ask that would help lead to the right answer.  I'd definitely talk to a CPA who can help you make the best decision for your situation.

Some of those questions are -

- Are you classified as a real estate professional?

- Are you single or married filing joint?

- Is your AGI over $150K?

- Is your property already at a loss?

Those questions are some that a CPA will ask to help to frame what the correct answer is for you.  Best of luck!

Mark Stone · Answer

Definitely plan to talk to my CPA about my specific case, just wanted to get a general sense of whether or not it was a practice that was commonly used.

I may already be at a loss for my rental income, but with about $7500 I could potentially shield of taxes from my regular income via the passive loss rule (I am in the phase out and not considered an RE professional).

Thanks for all of the things to think about though.

I would say that a lot of the stuff I plan to purchase would likely be considered upgrades though, like laying tile in the kitchen and bathroom and new cabinets in both. So, if so, would those therefore need to be depreciated anyways and wouldn't make a big difference in my deductions. Just roughly $5k spent depreciated over 27.5 years as opposed to $5k written off in 2016 alone?

Thanks everyone!

Dave Toelkes · Answer

I would challenge the notion of expensing the purchase of repair materials this year if they are not "placed in service" until next year.  I am not saying it is wrong, but it does seem to me that things you purchase that are used for your rentl property are not deductible.

Consider the extreme case, make a large materials purchase but never use those materials in your rental property.  You shouldn't be able to claim a rental expense for something never installed used in your rental property, so I would think that the cost of materials you purchase this year would not be expensed until you actually used them in your rental property.  Until you use them in your rental property, the material cost is a personal expense.

Depreciable items bring another challenge.  You can not depreciate anything in your rental property until it is placed in service even if you purchased the item(s) in a prior year.

Just how I see it.  Talk to your own CPA for specific guidance in this matter.

Jeff Rabinowitz · Answer

Sometimes it is better to cluster expenses into the current year, especially if you had a larger than usual income or capital gains that would push you into a higher tax bracket without more deductions. It might be best to move those expenses to next year if you expect next year will bring you an unusually high income. It is best to estimate your tax liability as close as possible if you think a few thousand dollars of expenses might make a difference. Often, it makes sense to take expenses as soon as possible (in the current tax year) and delay income as long as possible (future tax years) but not always. If you think there is a strong possibility that the tax rates might change--well, that might make your planning moot.

Year end rental expenses; purchase now or later?

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