Using the tax code to pay for upgrades to my dream home (hopefully)

San Jose, California
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Using the tax code to pay for upgrades to my dream home (hopefully)

Neil Polehn
Investor · Capitola, CA · Member since 2020 · 52 posts · 19 votes

Hey All,

I just used a cash windfall to buy my dream home in San Jose for 1.6M and, as it was very dated inside,  I am spending 200K to dramatically upgrade the kitchen, bathrooms and flooring with premium materials and using the tax code to write it all off.  Here is my plan.  I am going to keep my condo and rent out (2) rooms of the SJ house to friends in the Fall of 2023 to show it as a rental.

Since I am receiving income from the SJ house and keeping my primary residence, I can write off my improvements in 2023 and in 2024, after I have finished the upgrades, I will rent out my condo and move into the SJ house and make that my primary residence. This should allow me to carry all the upgrades I made as capital gains losses to write off against any future income I have.  Also, since I am using an interior decorator and spending on kitchens and bathrooms mostly, I believe I should get most, if not all, of those money back as equity.

So, in 2024 I will move into my dream house and rent out my condo, having had a great time designing and improving my dream home.  I dont see any flaws in this plan so hopefully there are not:)

Neil

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    3y

    @Neil Polehn It doesn’t work that way. Even viewing this as a straight rental….repair costs to get it “rent ready” are not taken as immediate expense write offs, they are depreciated….added to your cost basis. Capital improvement cost are depreciated no matter when they are done.

    Sit down with a cpa before you start.

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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    3y
    Quote from @Neil Polehn:

    Hey All,

    I just used a cash windfall to buy my dream home in San Jose for 1.6M and, as it was very dated inside,  I am spending 200K to dramatically upgrade the kitchen, bathrooms and flooring with premium materials and using the tax code to write it all off.  Here is my plan.  I am going to keep my condo and rent out (2) rooms of the SJ house to friends in the Fall of 2023 to show it as a rental.

    Since I am receiving income from the SJ house and keeping my primary residence, I can write off my improvements in 2023 and in 2024, after I have finished the upgrades, I will rent out my condo and move into the SJ house and make that my primary residence. This should allow me to carry all the upgrades I made as capital gains losses to write off against any future income I have.  Also, since I am using an interior decorator and spending on kitchens and bathrooms mostly, I believe I should get most, if not all, of those money back as equity.

    So, in 2024 I will move into my dream house and rent out my condo, having had a great time designing and improving my dream home.  I dont see any flaws in this plan so hopefully there are not:)

    Neil

    LOL.  Just shortcut the whole process by sending a letter to the IRS with your next tax return requesting an audit!
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  • Linda WeygantPro Member
    Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
    3y

    Unfortunately, the tax code doesn't work that way.  As Wayne says, you don't get a deduction for your remodeling costs spent prior to your rental in-service date.

    Please sit down with a qualified tax pro before you start.  This isn't going to go the way you think it will.

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