Tax Implications Rehab to Rental

[Kyle Spiewak]

I have a single family house I am rehabbing. If I were to decide not to sell it, but rather rent it are there tax implications that I should be aware of? There have been some significant improvements (roof, new bathroom ect.)

[Jon Holdman]

So, great topic for a discussion with your CPA.

All the improvements you make before its rent ready go into your basis. You want to try to break out as much as you can so you can get faster depreciation. Carpets, for example, would have a shorter depreciation than the 27.5 years for the house as a whole. Once its rent ready, you can start taking the depreciation. Once you've held it for a year, you'll get long term capital gains tax rates on the profit when you sell, though you will also have to pay depreciation recapture on the amount of deprecation you've taken (or, could have taken, if that's more than what you did take.)