Question for CPA RE REPAIRS

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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
7y
Originally posted by @Justin R.:

@Mauricio A.

I'm trying to figure out why people are saying this should be capitalized.

Generally, placing something back into working condition from an event causing damage would be listed as a repair/expense. Something capitalized would be a large capital expenditure extending the life of the home, or creating more value.

Why? Because of these highly complex IRS rules called "Tangible Property Regulations"

You're applying logic, and unfortunately the tax law is not built on logic.

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  • Simon W.Business Member
    Real Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 676 votes
    7y

    not sure what you are asking. Property repairs will be expense which will deduct from your income. Your NOI is what being submitted on the tax returns.

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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    7y
    Originally posted by @Mauricio A.:

    Are property repairs (say e.g. to foundation tax deductible?)

     For a primary residence no.

    For a rental property, they will typically have to be capitalized and depreciated over time due to the resulting improvement in the property. As a result of a catastrophe, they may actually be considered a repair depending upon what was done and what the cost of said work was. 

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  • Mauricio A.
    OP
    Bronx, NY · Member since 2017 · 94 posts · 14 votes
    7y

    @Steven Hamilton II

    What’s would a 7-9k foundation repair to prevent ground water damage qualify as? This is for an investment property.

    Thanks!

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  • Simon W.Business Member
    Real Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 676 votes
    7y

    That sounds like it needs to be capitalized 

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  • Justin R.Pro Member
    Rental Property Investor · San Anselmo · Member since 2015 · 659 posts · 600 votes
    7y

    @Mauricio A.

    I'm trying to figure out why people are saying this should be capitalized.

    Generally, placing something back into working condition from an event causing damage would be listed as a repair/expense. Something capitalized would be a large capital expenditure extending the life of the home, or creating more value.

    Disclaimer, I'm not a tax professional, and I personally use a CPA because I definitely don't know it all.

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    7y
    Originally posted by @Justin R.:

    @Mauricio A.

    I'm trying to figure out why people are saying this should be capitalized.

    Generally, placing something back into working condition from an event causing damage would be listed as a repair/expense. Something capitalized would be a large capital expenditure extending the life of the home, or creating more value.

    Why? Because of these highly complex IRS rules called "Tangible Property Regulations"

    You're applying logic, and unfortunately the tax law is not built on logic.

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  • Justin R.Pro Member
    Rental Property Investor · San Anselmo · Member since 2015 · 659 posts · 600 votes
    7y

    @Michael Plaks thanks for sharing the link!

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    7y
    Originally posted by @Mauricio A.:

    Are property repairs (say e.g. to foundation tax deductible?)

     The safest way is of course capitalization. However, there are so many other things that can be evaluated if you need a different treatment. 

    There are numerous Tax Courts that have determined that if the expenditure merely restores the property to the state it was in before the repair was required and does not make the property more valuable, more useful, or longer-lived, it is usually considered a deductible repair. 

    Your one sentence question is not enough to give you definitive answers, so talking to your profession with more detail will help you get desired result, if applicable. 

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  • Mauricio A.
    OP
    Bronx, NY · Member since 2017 · 94 posts · 14 votes
    7y

    Can someone explain what does being "capitalized" mean in lay terms-am not a CPA :) 

    Also, is there any difference with respect to being able to deduce the repairs if the payment for the repair is made in financed portions over several years vs one lump sump?

    Thanks!

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    7y

    @Mauricio A.

    Capitalized means that it is not all expensed in the current year but you have to depreciate it over its useful life based on IRS guidelines.

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