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Renovation of Rental Property

Should renovations just prior to selling be categorized separately or simply as "repairs." Renovation included new appliances, new countertops in kitchen and other improvements.

Best Answer

  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    Accepted Answer
    Hi @stevedell,

    These types of "renovations" could be considered as "improvements" which, if you were making them with with the intent of keeping the property (i.e. not selling it in the near future) would likely need to be capitalized and would then be depreciated over their useful life which would typically be a period of more than one year and closer to 25 years.

    However, since they were made with the intent to sell, or if they were a requirement of the sale terms, they may effectively be considered as "fixing up" expenses that would be deductible in the current year.

    You should consult your tax advisor if you re looking for tax advice.  But if you are simply trying to correctly account for these expenditures for Quicken file purposes, and they were not required by the sales contract, I would suggest that you include them in the basis of the real property rather than expense them in the year of sale.

    Frankx


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Answers

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    This question really is more of a tax question than a Quicken question. 
    Generally the fact that you're incurring these costs in anticipation of a sale doesn't change the required tax accounting. 
    You're calling them "improvements" and to my ear they sound like improvement which would require capitalization, with a subsequent sale of the improvements, but there's "de minimis" and other issues that haven't kept up on, so I'd suggest going over to the TurboTax help forum and asking the question. 
  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    Accepted Answer
    Hi @stevedell,

    These types of "renovations" could be considered as "improvements" which, if you were making them with with the intent of keeping the property (i.e. not selling it in the near future) would likely need to be capitalized and would then be depreciated over their useful life which would typically be a period of more than one year and closer to 25 years.

    However, since they were made with the intent to sell, or if they were a requirement of the sale terms, they may effectively be considered as "fixing up" expenses that would be deductible in the current year.

    You should consult your tax advisor if you re looking for tax advice.  But if you are simply trying to correctly account for these expenditures for Quicken file purposes, and they were not required by the sales contract, I would suggest that you include them in the basis of the real property rather than expense them in the year of sale.

    Frankx


    Quicken H&B-Subscription - Ver. R29.20 - Build 27.1.29.20  - Windows 10 Home - Ver. 2004
                                             - - - - Quicken User since 1984 - - - 
      -  If you find this reply helpful, please click "Helpful" (below), so others will know! Thank you.  -
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