repair fixes before or after first tenant moves in (tax benifits)

Investor · Lusby, MD · Member since 2015 · 30 posts · 4 votes

I just purchased my second rental house and I am getting it ready for my new tenant to move in. I am doing the standard (fixing up the inside (painting, minor repairs, etc now). I plan on keeping this house for at least 15/20 years. The heat pump works fine but is at least 20 if not 25 years old, the house also has some big trees too close to the house where big branch's have already fallen off the tree and have done damage to the roof in the past (I can tell by the patched shingles). I want to have the trees removed just for preventative maintenance and change out the heat pump. From a tax/write off point of view Should I make these repairs prior to the tenants moving in or after the tenants are in the house?

Thanks

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes

11y

I'm not an accountant, so I could be wrong, but here's my take...

There definitely could be tax differences between doing the work upfront and doing it after the tenant moves in. Any work done prior to leasing a rental would go to the basis of the property and would be depreciated over 27.5 years -- it would not be expensed. Work done after the property is leased would either be capital costs (depreciated either over 27.5 years or over the useful lifetime of the item) or would be a maintenance expense (deductible in the year that it occurred).

So, doing a maintenance-type repair after a tenant moves in could move the cost from going to the basis of the property to an immediate deduction.

That said, most maintenance (non-capex) costs are going to be relatively small, and the headache associated with trying to do these things after a tenant moves in is much worse -- in my opinion -- than the small tax hit.

Again, I'm not an accountant or tax professional, so I could be wrong...

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Account Closed
Retired Landlord/Author · Commerce Township, MI · Member since 2012 · 1k+ posts · 1k+ votes
11y
It's a lot easier to do it prior to the tenant move in.
Let's say you waited until after the tenant moved in to take care of that tree and their car is parked in the drive way or in front of the house, or has toys on the lawn, whatever, and a limb, whether big or small, falls on their property, bingo you've got a lawsuit.
Tenants may say they had to move due to you doing the repair because of the smell or the dust going on or the inconvenience. So they want money for a motel room or be let out of the lease, or non payment of rent.
These things may never occur, but has a chance to and in this day an age being a suing society, I'd take care of those issues now.
Nancy Neville
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
11y
I don't think it matters whether the unit is occupied from a tax point of view so long as you are operating it as a business endeavor (i.e., you're not living in it also). I have itemizations from when units were vacant and when tenants were in them.
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Max T.
Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
11y
I don't see the difference. A business expense is a business expense.
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Vinh Le
Flipper/Rehabber · Katy, TX · Member since 2015 · 31 posts · 4 votes
11y
@Kevin McDonald
I completely agree with @Account Closed on doing the repairs prior to the tenant move in just to avoid any lawsuits. Small percentage of occurring but big headache emotionally and financially if it does happen. If you're tenant sees that you're taking the initiative to take care of problems prior to them living in the home for their safety, they will certainly appreciate your efforts. Best of luck and congratulations!
Vinh
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
11y
I'm not an accountant, so I could be wrong, but here's my take...
There definitely could be tax differences between doing the work upfront and doing it after the tenant moves in. Any work done prior to leasing a rental would go to the basis of the property and would be depreciated over 27.5 years -- it would not be expensed. Work done after the property is leased would either be capital costs (depreciated either over 27.5 years or over the useful lifetime of the item) or would be a maintenance expense (deductible in the year that it occurred).
So, doing a maintenance-type repair after a tenant moves in could move the cost from going to the basis of the property to an immediate deduction.
That said, most maintenance (non-capex) costs are going to be relatively small, and the headache associated with trying to do these things after a tenant moves in is much worse -- in my opinion -- than the small tax hit.
Again, I'm not an accountant or tax professional, so I could be wrong...
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Tamara R.
Investor · Vienna, VA · Member since 2011 · 158 posts · 45 votes
11y
What J Scott said. According to my accountant, though, if you have the property "in service" (i.e. it is advertised for rent and you are actively looking for tenants), you could deduct the tree cutting in that tax year. However painting and property improvements would be added to your cost basis.
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Tamara R.
Investor · Vienna, VA · Member since 2011 · 158 posts · 45 votes
11y
I think changing out the heat pump would be deducted over what is considered its useful life--10 to 15 years I believe.
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Kevin McDonald
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Investor · Lusby, MD · Member since 2015 · 30 posts · 4 votes
11y
Thanks for all the advice. The house is actively advertised and I have multiple applicants at this time who want the place in 2 weeks. I probably wont have time to do repairs before tenants move in.
Thanks
Kevin
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