All Forum Posts by: Kevin Polite

First let me say an agent doing business this way is an awful way to conduct business. However, I recently, as a favor for a friend listed a short sale property and you ran into the same type of issues as you would with an REO property. The banks are horrible about returning e-mails and you'll be luckily if you ever speak to your "negotiator.

First, the agent is making a really small commission on these properties and secondly, even though they have the listing they have trouble with the REO/bank/investor returning their call. Buying Agents are also frustrated with this situation. Their client,you the investor or buyer thinks he/she isn't doing their job but it really all falls back on the banks for not hiring enough competent folks and properly training them. 3 years into to the mess we know it's going to be a while before they clean out their inventory so why don't they hire folks to make everyone else's life easier and they can more easily sell these homes.

Thanks to everyone. I joined BP maybe a month ago and have learned so much from folks like yourself.

Chris and Dave T, you seem to have conflicting views on this and I guess, just like any tax question, it depends on how you interpret it. This is my first remodel to rent. House was in fairly bad shape, but I'm upgrading it to rent to the 20-30's age group that are move into this n'hood in droves to be close to nearby employment centers & surrounding nightlife. I know the taxman doesn't care about that. I've have a rental that is ongoing and I know the accounting on it because it didn't need any renovation.

My question is specifically regarding a home you're renovating to rent.

Dave T you say anything you do to the home must be capitalized, however Chris you seem to be agreeing with my initial post that you can claim some items as repairs and others to capitalize on a home that must be remodeled BEFORE you put it into service.

Here's some additional information I found on Tax Info Blog: Let's start with the definitions of terms:

Repair: deductible; keeps property in good operating condition; does not materially add to the value of property; does not prolong property's useful life

Improvement: capitalized (depreciated); adds to the value of property, prolongs its useful life, or adapts it to new uses; an extensive series of remodeling repairs is considered an improvement

As you can see, this makes a fairly fine and legalistic distinction. Some things are obvious. Installing a brand new island in a kitchen is obviously an improvement. Putting some replacement wallpaper up is obviously a repair.

The IRS gives some examples of things that may fall into the gray area, but are actually improvements:

Additions, like new rooms and decks
Major changes to lawn and grounds, like roads and landscaping
Miscellaneous major upgrades, like rewiring or a new roof
Heating and air conditioning units
Plumbing systems
Interior improvements like appliances
Insulation

The difference between an improvement and a repair can be a costly one. A repair is deductible the first year. An improvement must be slowly deducted (depreciated) and eventually recaptured as a capital gain. The depreciable lives involved usually are:

7 years (10 in AMT): new appliances installed
15 years (20 in AMT): major land improvements
27.5 years (40 in AMT): residential rental property direct improvements
39 years (40 in AMT): non-residential rental property direct improvements

Let's take an extreme example to illustrate. Suppose a taxpayer is in the 28% federal tax bracket, and is in AMT. He spends $10,000 on a rental property expenditure. If this is a repair, his taxes are reduced by $2800 the first year. If it is an improvement, his taxes would be reduced by $70 per year for forty years (no adjustment for inflation).

Obviously, the bias is toward taxpayers claiming that an expenditure is a repair rather than an improvement. In an honest-to-God judgment call, it really comes down to the comfort level of the taxpayer. If the taxpayer is prepared to potentially defend the expenditure under IRS scrutiny, and if the tax professional legitimately-believes this is a gray area, then I believe it is the duty of the tax professional to represent the best interest of the client and take the repair deduction.

This is not to say that preparers should lead their clients (nor should taxpayers lead themselves) down the primrose path of repairs. If it seems like a stretch to call something a repair under IRS rules, then it is probably an improvement.

Posted by Ryan Ellis on 2007.01.19

I am considering moving my IRA to a self-directed IRA and told a friend and he said he took the tax hit and depleted his IRA and is happy he did. He said even with the tax consequences he came out ahead. He has complete control of his money and he says that he would have had to pay taxes on the amount anyway. I told him that though they maybe true he lost all that money to taxes that he could have put to use in a self-directed IRA.

I read somewhere that when you are remodeling a house to rent that some of the repairs actually can be written off in the year in which the remodel takes places and that it all doesn't have to be included in the cost basis. I'm near completion of a remodel and if this is true would really help me at tax time and if this is true what determines what can be written off as repairs and what must be added to the cost basis?

Ed, since you're an agent you can got into your MLS and pull up listings based on what's listed as a short sale or REO. Then you can find the agents in the area you're interested in that has the most properties. If you're buying more than 1 or 2 you maybe able to get in good with them. As a agent/investor I've come across of few of these on the buying side and believe me these agents are barraged with paperwork (Equator is a nightmare to deal with from the listing side because the banks can take constantly ask the agent and the home seller 10x for the same info) and they don't get much commission per house (we'll make it up in volume) so you really need to bring something to the table to be able to get their attention.

Being a realtor and a new investor I've just put one of my rentals listing online. I did so because my Broker funnels all mls listings to over 25+ websites including truila, zillow, realtor, redfin.com's, etc. This is worth the price of admission alone. Listing on mls (there are actually 2 in Atlanta!) is usually included in the agent's monthly fee to the Broker. As far as commission it's customary in Atlanta to split the first month's rent between agents, but it depends on the agent. Most buyer's agent won't bother, but I'm seeing more and more agents specialize in rentals and most charge 10% of the monthly rent to act as property manager's. some agents won't bother with this portion of it.

Congrat. Are there certain areas of Atlanta you invest? My 2 deals are in Decatur. I"m starting out slow and in the area I know well.

I would think in the price point you'd expect to get new windows, definitely here in Atlanta you would. Plus you could market with the "green" value of having double pane windows.