Condemned purchase in 2017 tax questions

6 Replies

I purchased a home from the city for 3k last year (nooby mistake as it was the only house on the list I didn't go look at personally) but I figured the land was worth that! house was condemned and needs a complete overhaul. I'm almost done with the tear out and some of the reconstruction has been started but my question is since it was a cash purchase and liens and taxes have been paid along with expenses such as trash containment, permits, ect... can I deduct that from my taxes. ( I currently have my primary house, 1 rental, and now this property. It was not rented at all and I'm considering flipping it once finished but that is not set in stone as it will be a completely renovated house for less than 40k so the prospect of having a completely redone rental that I can get paid off in 2.5 years is enticing) I currently use turbo tax premium since I'm limited on properties but was curious as to where/how (if possible) do I classify it in order to take advantage of any deductions I can claim on it? Thanks in advance for any responses!!!

Nope. All the expense to make it into a rental- or to flip it. Add to your basis.

It will be depreciated once the rental is in service. 

Or it will calculate into your gain if you end up flipping.

@Natalie Kolodij How is this difference then adding anything that falls outside of cap ex as deductions?  Unless those expenses described above are categorized as capex...? or am just totally confused here.

Updated 5 months ago

So many misspelling errors lol [argh]...

@Moises Benitez because any expenses incurred getting the property ready to be put into service need to be capitalized. 

The rental isn't a rental yet- so you can't expense things because your "business" for lack of a better word isn't yet open. 

Thank you, @Natalie Kolodij ... I guess my question is what expenses can you then be deducted?  Say I close today, I list today, oh, but wait...I decide that before I move someone in I'd like to put in a new vanity and toilet, and by the way, i don't like the floors so I'm upgrading them as well.  Can those expenses be deducted? 

To deduct rental expenses, your property must be READY and AVAILABLE for rent and placed in service as a rental.  Since you have a condemned property, you must complete all the necessary work to make the property habitable then get your certificate of occupancy from the county building inspector.  Once all that is done, you can put your property into service.  After your property is in service, repairs can be deducted on your Schedule E.  As a general rule, improvements are still capitalized and depreciated.

But, if the properry is going to be a flip, all direct costs for the property are added to basis and are included in the Cost of Goods Sold on your tax return for the year of the sale.  None of the property repairs and renovations can be expensed for a flip.

So my 2017 expenses/taxes paid (if I plan on keeping as a rental) ARE able to be deducted in say 2018-19 and get someone in it OR do they only get to be utilized if I include them in the basis of a flip? Basically, do I ignore those expenses on my personal tax stuff for this CURRENT year either way I decide to take the house? 

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