Property Manager · Member since 2011 · 18 posts · 0 votes
I occupy 1/2 of my rental property, and rent out the other half. I spent $20K on repairs/supplies/materials & $20K in labor on my personal residence of the rental property.
I only plan on living here for 5 years, then renting out the whole property Can I deduct any of this on my 2010 tax return? or is all this lost money since it was spent on my personal residence.
No, money spent on your personal residence is a personal expense. If some of your renovations were for energy efficient improvements, you may qualify for up to $1500 in energy efficiency improvement tax credits.
The $40K you spent on your residence is added to your cost basis. It is not lost money. If you move out in five years and convert your home to a rental, you can recover that cost through depreciation.
Off the top of my head so to speak, pro rated to the extent used for business purposes, that would be half that would apply to the whole building, all that is in the rental unit leased..
No, money spent on your personal residence is a personal expense. If some of your renovations were for energy efficient improvements, you may qualify for up to $1500 in energy efficiency improvement tax credits.
The $40K you spent on your residence is added to your cost basis. It is not lost money. If you move out in five years and convert your home to a rental, you can recover that cost through depreciation.
One last question, when I add the 40K to my basis, do I add it this year on my tax return, and depreciate that new adjusted amount? Or do I add it to the basis when I sell my property?
You can't depreciate your personal residence at all. You would keep records of the improvements, and then they would decrease the gain when you sell. It would not show up on this years tax return at all.
If the money was spent on the rental, it would become new depreciable items associated with the rental. You would start the depreciation from the date the improvements were in service and could take the partial year's deduction. These would also increase the basis which would decrease your gain when you sell. However, depreciation decreases your basis and increases your gain when you sell.
When you convert your personal residence to a rental, you can start taking depreciation.
This is not, IMHO, a DIY project. Send all this to your CPA and let them keep track of what to do with it.
I occupy 1/2 of my rental property, and rent out the other half. I spent $20K on repairs/supplies/materials & $20K in labor on my personal residence of the rental property.
I only plan on living here for 5 years, then renting out the whole property Can I deduct any of this on my 2010 tax return? or is all this lost money since it was spent on my personal residence.
So you are renting out half of the building you are living in. While depreciation of a personal residence is non deductible, depreciation of rental property is. Half of your home is being used as rental property so you can take half of the depreciation. The 20K spent needs to be examined further. Was this improvements or really repairs? What part of the house was the work done in? Also it will be necessary to determine when you started using part of your home as a rental because that will affect any deduction.
Acccording to your original post, all the renovation cost ($20K in materials, $20K in labor) was spent on your personal residence.
Therefore, the $40K renovation cost is an adjustment to residence basis and not deductible. The depreciation basis for the rental portion is not affected.
Even though both units are under the same roof, you really have two separate properties -- one is your personal residence and the other is your rental property. When you convert your residence to a rental, you will report two separate rental properties on your Schedule E and depreciate each of them separately.
Winston, since you can directly tie the expense to your personal side, this cost is added to the cost basis of your personal residence. No adjustment needed on your tax return for this year but you do need to update your cost basis schedule in anticipation of converting to a full rental down the road.