Calumet City, IL · Member since 2014 · 312 posts · 49 votes
I'm not really sure which forum this should be in. But my question is, how do tax write offs work as far as repairs and upgrades are concerned? I have read and heard some people say any repair and/or upgrade you perform is tax deductible. However I called the Tax accountant that normally does my annual taxes and she said that you can only deduct things deemed as upgrades. For example.....Fixing a furnace is a repair (not deductible) but replacing the furnace is an upgrade (is deductible). What does the law say concerning this? Thanks.
For a rental property, repairs are all an expense, deductible that year. Things like a new appliance, furnace, etc are depreciated. The instructions for schedule E should help clarify what's 'repair' and what's an 'upgrade'. Most items are one or the other with little grey area.
I'd suggest getting an accountant that has other people that do rental properties so they know the ins and outs of the industry. Many accountants seem great with a regular ma and pa store business, but rental properties are a whole different animal. The forms that get filed are different (especially when you start and only own a few), and it's important that your taxes are done correctly.
I'd suggest skimming (it's a semi-dull read): http://www.irs.gov/publications/p527/
Thanks everyone for your help. I did find a new accountant. He seems to be pretty good. However It looks like my wife and I are going to have a tax bill. I am not worried about paying just surprised. Apparently when you pass an annual income of $125K/year certain you no longer get certain deductions like the Child education credit, interest deduction from students loans, and most surprising we cannot deduct anything from the expenses of our rental property. Anyone else encounter that?
Maybe @Steven Hamilton II
can help answer?
You cannot deduct your losses in the current year. They are deferred until either a year in which you have an income from the property OR the year in which you sell the property. 401ks, HSAs, IRAs anything you can do to lower your taxable income is highly encouraged. This will help not just for rental losses but for Financial aid as well.
You want to realize that losses are limited by $0.50 for every dollar of income over $100k.