Real Estate Investor · MD · Member since 2008 · 20 posts · 0 votes
I just purchased a house that was never completed. The house was framed up, put under roof/ windows, siding, windows but the inside was never finished. The inside is just bare studs (no insulation, plumbing, HVAC, ETC…). I bought the house one week before the end of the year. My only expenses for 2012 are all my closing costs, and a small amount of materials I purchased to fix a couple things on the property, plus I had to pay back the previous owner 6 months in property tax because they pre paid it for this year.
This new year I will be putting about a 100k more into the property to finish the house.
My question is this is my first investment property and I am not sure what I can write off and what I cant. Should I go to a professional tax accountant, or are some of the “turbo tax” type programs helpful in walking you through what you can right off. I am not trying to get greedy or do anything illegally but want what’s rightfully mine.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Most of what you spend is going to go into your basis for the property. The basis is the amount you paid, plus purchase costs, plus all the investments you are making into the property. If this becomes a rental, then most of what you spend prior to it being ready to rent gets added onto the basis. That increases the depreciation you take each year. Some items, such as carpets or applicances, have faster depreciation schedules than the 27.5 for the property itself. When you sell, or, if you sell right away if this is a fix and flip, your basis is what you subtract from the net amount from the sale to determine your gain. An additional twist is that if you hold this and take (or, should have taken but didn't) depreciation, the depreciation reduces your basis and increases your gain. And brings unrecaptured depreciation tax into play.
I think professional help is essential to minimizing taxes for real estate.
New York City, NY · Member since 2012 · 253 posts · 7 votes
13y
I recommend seeing a tax accountant because what you think were deductions for 2012 will probably be different for you in 2013 so it is better to find out now before getting into a bad habit for the next tax return. The tax accountants will be very busy in the coming years with so many deductions and other items on the table in the ongoing fiscal negotiations.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Most of what you spend is going to go into your basis for the property. The basis is the amount you paid, plus purchase costs, plus all the investments you are making into the property. If this becomes a rental, then most of what you spend prior to it being ready to rent gets added onto the basis. That increases the depreciation you take each year. Some items, such as carpets or applicances, have faster depreciation schedules than the 27.5 for the property itself. When you sell, or, if you sell right away if this is a fix and flip, your basis is what you subtract from the net amount from the sale to determine your gain. An additional twist is that if you hold this and take (or, should have taken but didn't) depreciation, the depreciation reduces your basis and increases your gain. And brings unrecaptured depreciation tax into play.
I think professional help is essential to minimizing taxes for real estate.
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
13y
Kevin Macdonald,
What is your plan with this property? Will it be a rental?
The short version as Jon Holdman said is that your expenses on the property are all really improvements and will all be added together so you can depreciate the property.
I highly recommend sitting down with someone or communicating with someone very soon to talk about taxes. I'd be happy to answer your questions here As I'm sure you're not the only one who has them. You can deduct just about an expenses that is incurred for the property.
Realtor · Houston, TX · Member since 2011 · 916 posts · 296 votes
13y
Kevin Macdonald Get Every Landlord's Tax Deduction Guide. Many people on here including myself have read and recommend it. It'll give you an understanding of all of the deductions.