The "A" in BARRR strategy with existing tenant

[Khang Nguyen]

Hi BP,

I purchased a property this past year that had an existing tenant that was month-to-month.  As part of the purchase agreement, the tenant's lease agreement ended 2 days after our closing date.  After the tenant moved out, the property underwent major renovations, and the plan is to put the property back up for rent in the next few weeks.

My question is, as part of the BARRR strategy (buy, advertise, rehab, rent, refinance), since the house was already technically rented out, can I deduct all rehab expenses even if I didn't re-advertise the property as available for rent?

[Roy N.]

@Khang Nguyen

When you do maintenance/fix things - i.e. a broken cabinet door - or when you clean and paint during turnover, those activities are generally classified as expenses.

When you add or renew things to the property such as fixtures (lights, plumbing); a new HVAC system; new roof, new flooring, etc.  These type of items become part of the premises and are expected to have a serviceable life of several years ... as such they are capitalized.

There is generally plenty of grey in the middle and that is where having an experienced accountant is beneficial.