Accounting for Rental Flips

[Alex Wesling]

Hey folks

we have been buying houses and doing brrrr and has some questions around taxes

We are spending around 25-30 on each house but was curious if this all falls under capital improvements or do you class it as repairs and do immediate deductions

I know new roof and appliances are typically depreciated but what about a shower that has mold stains in it that we replaced. A toilet that was cracked that we replaced. Kitchen cabinets that were broken that were replaced. Etc. 

Thank you BP team

[Simon W.]

Quote from @Jake Baker:

@Alex Wesling

Here is an article from the IRS that may help define depreciation on rentals: https://www.irs.gov/publications/p527

With my clients with rentals, we will put most of the large rehab expenses as CapEx on the balance sheet. When it is time to sell the property, they will move to the P&L.

 My guess is you put that under COGS when it is sold, but do you depreciate the capex for your clients?