Timeframe after closing to patch mend repair interior items

5 Replies

I thought about posting this in the tax forum but realized this is more along the lines of a general or landlording topic.

Do you guys do patch/mend/repairs on a property shorty after escrow to count it as the "cost basis" for the property, or wait a little while (with or without tenants already in place) to do it and just count it as a repair for that year. As an example (fixing vinyl flooring in the kitchen).

I THINK it would be more advantages to do the latter from a tax standpoint, but likely there are subtlties and other viewpoints to consider.

Do you guys have a preference, mend/repair shortly after escrow (cost basis), or when tenants already in place and count it as a repair for the year? Thanks for your feedback.

Hi @Andrey Y.

I stumbled upon your question when searching for repair information.

What I've done with my last two properties was to take care of what needed to be taken care of prior to the tenants move-in. I do this so that there are no further issues down the road for those things that can easily be taken of after closing.

A qualified tax preparer can elaborate on the 'cost basis' and if for those items you mentioned would be included into the 'cost basis'. I wonder, it seems as though it would just be listed as a repair without being added to the 'cost basis'. But again, a qualified tax preparer would take the guessing out of this and can give you a definite answer.

And because this is probably more tax related you may want to post it in the tax forum.

Hope this helps.

I would suggest you talk to a CPA first but....

When I buy a place my goal is to defray most of the income with depreciation and other deductions.  I also want to make sure that the price of the property is as high as it can be but I do take the above example as repairs, the cost of a property (without the land) is depreciated over 27.5 years.  Depending on the "repairs" you can depreciate those on an accelerated schedule (consult your CPA).

Your CPA would better give you the exact numbers for short term and long term ramifications of your decisions.

@Andrey Y.

@Daria B. and @Frank Woodin have done a pretty good job explaining the pros and cons. I too recommend you speak with a real estate accountant or CPA. I can't offer you concrete advice as I don't know your tax or financial position, but I can give you a high level overview. 

First, it all depends on when the property is placed in service. If you make repairs prior to the property being placed into service, those repairs are treated as improvements, meaning they are added to the cost basis and depreciated over the life of the asset. 

Second, developing a strategy depends on your tax position. Are you in a low tax bracket? If so, you may benefit from capitalizing everything in order to shelter income later on (assuming you move up in tax brackets). You will be shelter income in the for of depreciation. On the other hand, if you are in a high tax bracket, it's generally better to deduct (repairs) as much as possible to shelter your income and provide you with a passive loss. Depending on income levels, this passive loss may or may not be deductible against your ordinary income. 

Hope this helps. Let me know if you have questions.

Medium logo blackBrandon Hall CPA, The Real Estate CPA | http://www.therealestatecpa.com | Podcast Guest on Show #196

Is it also true @Brandon Hall that for losses there can be no more than $25k? That might also be something that @Andrey Y. needs to consider and be aware of.

@Andrey Y.I see  you are in Hawaii. I was there in Maui and it was beautiful and while on vacation I was thinking of investment property but thought it was too far, I'm in Florida, to try and handle. There are a lot of homes that I found owners have as a vacation property and they lived in California.