Repairs vs Improvements in the eyes of the IRS?

[Mike Lynch]

Hi,

The foreclosed home that we bought over a year ago is about to go on the market this week. It was torn all to pieces when we bought it. Many things needed work and either had to be purchased or rebuilt to new condition. 

According to the IRS: "Most of the work done on houses falls into the repair or maintenance category. Under the Internal Revenue Code, repairs, renovations, and general maintenance of your personal residence are nondeductible personal expenditures"

"For work on a personal piece of real estate to have any tax value, it must add to the property's value or prolong its life. These are classified as home improvements and not general maintenance"

Painting will prolong it's life, otherwise it will rot down. Repairing a faucet or sink prolongs it's life, so that the floors and sub-floors don't rot away from uncontrollable flowing water and leaks, but is considered maintenance.

The IRS says: that working on a kitchen faucet is considered to be 'General Maintenance" and does not add value to our homes.

Hum, well that's confusing! ... If you let a leak go, it will destroy a house, I know since I am a plumber, and it is very common sense. Repairing things will prolong it's life.

This is pretty confusing and very gray to me! On the home that we are selling, we have about $100,000 worth of receipts from Lowe's, Home Depot, Plumbing Stores, Appliance Stores, permits, and contractors etc. So, can we write everything off that we spent to make the home desirable for someone to purchase? We did only what we had to do to comply with the City and get everything in the home in working order to make it habitable and prolong the home's life. We didn't spend all of this money for fun. We had to do what we had to do.

Can you explain some of this stuff and what can be written off for a home flip?

Thanks!