Are Cap Ex, Vacancy, Maint taxable income?

Question

Howdy Guys!

This is my first real post, and i'm completely new to all this. My apologies if this question reveals i'm a moron, I assure you I have no idea what i'm doing. This has probably been asked before but I couldn't find it. I always run the numbers taking all these things (Vacancy, CapEx, Maint) into account and it drops my cashflow down quite a bit which I don't mind. As far as I understand the Property Manager is going to take theirs, so i'd never even get it, but for vac, Maint and CapEx I'd put it in a different account as a rainy day fund.

I consider this an expense, but for tax purposes is it an expense or be considered income?

State is Missouri, USA.

Cheers!

Hugh

Craig Jeppesen · Answer

I think you are talking an apples and oranges comparison here.

Yes you need to set some of your earnings (cash flow) aside and build a rainy day reserve savings account for when you have vacancies and reserves, but this does not translate into taxes.

Taxes are typically on a cash basis, so you cant deduct your saving money for a water heater to go out one day.  You Deduct it on your taxes the year the water heater needs replaced and you spend $500 on a new water heater.

Actual money coming in is taxable income; actual money going out is a tax deduction on that income.

I hope that makes more sense.

John Teachout · Answer

The simple answer is Yes. Until you spend them.

Hugh Carnaha · Answer

Thanks a ton Craig! That's what I was thinking made sense the most. One day i'll have an expense when i do replace a roof, fridge, paint etc. Those will likely be consistent through the year and I should adjust my %% based on that. But in the meantime i'll be taxed on the cashflow coming in until it's spent as an expense.