I have brought this up on other boards, but I still am not sure of the answer. I am a landlord who has acquired some fix up properties which I will lease to tenants. I have not yet made any of the houses rent ready. The fix up procedure has gone on for three months. Do I capitalize these fix up costs or can I expense them? I think the new roof and furnace are capital improvements, but what about paint, drywall, electric outlets, PEX pipe repairs, and step repairs? I have heard from some sources that ANY expenses to get the house to rental condition must be capitalized.
Secondly in my state of Michigan property taxes are prepaid, and at closing the purchaser (me) reimburses the seller for the portion of the property taxes applicable from the closing date forward. Do I capitalize these or are they expensed?
Thank you for your answers. I want to start allocating these expenses properly now.