Flower Mound, TX · Member since 2014 · 50 posts · 36 votes
So when you are doing a rehab, how do you handle categorization of expenses into capital accounts verses expense accounts? Do you even try to keep track of the difference? Any significant renovation to the house could be capitalized, then taken as depreciation because it increases the value of the property. However, treating everything as an expense would reduce income and taxation right now. Just wondering how everyone does it? I can see an argument for both ways. There is probably an accounting rule that tells us the proper way to do this.
- Treat everything as an expense.
- Treat everything as a capital addition to the property
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
5y
For a flip, there is no difference. All costs go into inventory and balance sheet. When it is sold, it is removed from the Balance sheet, booked to cost of goods sold and profit is income.
If you are rehabbing to rent, and the property is vacant, all costs are capitalized until it is brought online. Once online, most costs are expensed as repairs and maintenance, unless it can be considered ADDING value. So repainting the house is an expense, but remodeling your outdated, but useable, kitchen is capitalized.