Tax question for BRRRR investing

[Jaron Walling]

I'm planning to BRRRR my next property. What are the limits for tax deductions during the rehab on this type of investment? The property needs $20k worth of capx and repairs but it's move in ready currently.

I read in forums (can't find the posts) some of this is tax deductible if you post a "for rent" sign in the yard before you start. I will be tracking all the expenses with a business account, keep it separate from personal, but I don't want to get in trouble with the IRS. If anyone can elaborate on taxes I would appreciate it. 

[Todd Rasmussen]

@Jaron Walling

Happy to try and help. You should definitely do both of those things, tax law is complicated. Make sure you follow up and post the result so we keep the facts on the forum as much as possible.

If you are going to BRRRR you might not qualify for the active participant category that a flipper would have. I'd spend a hundred bucks on a phone call with your CPA before you start in case you inadvertently do something that sticks you in a less than optimal tax situation. The basis for my initial post was the following instructions for schedule E which would be for a passive investor claiming their rental income/expenses on their personal tax return.

General Instructions for Lines 5 Through 21

Enter your rental and royalty expenses for each property in the appropriate column. You can deduct all ordinary and necessary expenses, such as taxes, interest, repairs, insurance, management fees, agents' commissions, and depreciation.

Do not deduct the value of your own labor or amounts paid for capital investments or capital improvements.

The good news of passive investing is no SE tax.