Taxation on Improvements to a new rental property

6 Replies

I am investing in my first rental property and need help navigating a few basic questions:

- If I make improvements to this rental property, how is it taxed? (Is it considered expense and can be deducted at one go? Is it part of standard deduction?)

- Need help with a rough calculation of income and expenses from tax perspective (Rent: 1k, Property Cost: 100k). Expenses - 300 HOA, Interest 290, Property Tax 100, Insurance 60. In this case my profit will be 1000 - (300+290+100+60) = 250/Month which is 3k/Annum. How does standard deduction, other expenses (like repairs) affect this inclusion of 3k to my income?

Hi @Axy Parikh

Welcome to Biggerpockets!
Congrats on your first rental property!

1) It depends - 
If it is a repair - It is expensed in the current year.
It if is an improvement - it should be capitalized(if the amount is below $2,500 and you make certain elections - it can be currently deducted).

repairs maintain the property
improvements increase the life of the property, increase the value of a property or make the property more efficient.

2) The great thing about real estate is that they allow depreciation.
based on a purchase price of $100,000 where land is allocated $20,000 and the building $80,000 and purchased on January 1st. you would be entitled to a $2900 deduction to net you to $100 of taxable income less any repairs.

Are you managing the property yourself? if not you should factor in the property management fees.

Standard deduction should be looked at separately outside of looking at the income/losses from real estate. But you are entitled to take a standard deduction on top of the expenses named above.

Basit Siddiqi, CPA

    Thank you Basit ! Exactly what I was looking for.

    I was wondering about this as well, as I have a concrete foundation and had it repaired this year. This repair is $10,000 repair how do i know if I need to capitalize this or not. If I do what do I use for the life? thanks 

    @William Brockenshire

    it is hard to answer that question without knowing more facts.
    What was the issue with the foundation?


    Was there a crack and it was fixed up? (hints at a repair)
    did the contractor pour a new slab of cement? (hints at capitalizing)
    Was a portion of the foundation fixed(hints at a repair)
    Was the whole foundation completely replaced?(hints at capitalizing)

    Basit Siddiqi, CPA

      UNTIL the property is actually put into rental state your deductions for repairs / upkeep are not tax deductable as business expense.. so rent it out to someone that's maybe family and will let you work and improve while it's being rented, honestly well worth the extra thought that goes into this..

      Talk to your tax guy about what's required but start out knowing what you can do,, instead of what you could have done.

      Even if you rent it out at loss,, it's still renting it out.. 

      Originally posted by @Basit Siddiqi :

      @William Brockenshire

      it is hard to answer that question without knowing more facts.
      What was the issue with the foundation?


      Was there a crack and it was fixed up? (hints at a repair)
      did the contractor pour a new slab of cement? (hints at capitalizing)
      Was a portion of the foundation fixed(hints at a repair)
      Was the whole foundation completely replaced?(hints at capitalizing)

       @Basit Siddiqi

      The foundation sunk a few inches in the back, the repair was lifting the foundation with a jack system set in the ground under the foundation. The jacks lift and level the foundation and are left in place. Thanks for the response!

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