should i wait to repair until after i move from my current house and before renting

Question

I am currently in the planning stages to purchase a new primary residence and then rent my current residence. It does need a few minor repairs and upgrades. Should I wait to start repairs until after I move to my new primary residence to take advantage of tax depreciation for the repairs before renting?

Sean

KC Pake · Answer

The decision to make repairs and upgrades to your current residence before or after moving out can have different tax implications, especially when you convert your primary residence into a rental property. Here are some key points to consider:Primary Residence vs. Rental Property: Generally, repairs and improvements to your primary residence are not tax-deductible. However, once the property is classified as a rental, you can begin to deduct expenses associated with its maintenance and improvement.Repairs vs. Improvements: The IRS makes a distinction between repairs and improvements. Repairs are typically considered as maintenance that keeps your property in good working condition, while improvements add value to the property, prolong its life, or adapt it to new uses. Repairs on a rental property can be deducted in the year they are made, while improvements must be depreciated over the life of the property.Timing for Repairs: If you wait until the property is officially classified as a rental, you can deduct the expenses of repairs in the same year you make them, which can offset rental income. Doing repairs while it's still your primary residence means you will not get this immediate tax benefit.Depreciation and Improvements: When you start renting out your property, you can begin to depreciate the cost of the property (excluding the land) over a set depreciation period (27.5 years for residential property). Improvements made after it becomes a rental property can be depreciated over their useful life as well.The Importance of Good Record-Keeping: It’s important to keep accurate records of all expenses, whether they are repairs or improvements. This documentation will be critical for tax purposes.Consulting a Tax Professional: Tax laws can be complex, and there may be nuances to your specific situation that could impact the best course of action. For example, if you live in the house for 2 out of the 5 years prior to selling, you may be eligible for the exclusion of capital gains tax up to a certain limit for single or married filing jointly taxpayers. This may affect your decision if you plan to sell the property after a few years of renting it.Consider the Market and Rental Readiness: If the market is currently favorable for renters and your property needs minor repairs to be rental-ready, it might make financial sense to do those repairs now rather than waiting, especially if you can command higher rent.

Colleen F. · Answer

@Sean Meyer well living in it for 7 years you could exclude your capital gains if you sold now.  If it makes a good rental and you don't plan to sell anytime in the near term then converting makes sense.  I believe you should look into the placed into service (as a rental) date. That is when you can  consider those repairs to be deductible for a rental.  Usually when you put it up for rent. If the repairs are significant I would schedule now for after you move.  If you put it up for rent some things people won't care if you haven't done them but major cosmetics it will affect rentability. Although I have had people rent places before the countertops are even in. What kind of repairs are you talking about?

Sean Meyer · Answer

Thanks for all the tips!

Alecia Loveless · Answer

@Sean Meyer I’m not sure it matters much depending on if you want to make the repairs this year and count on the 2023 tax returns or if you’d prefer to wait until after the New Year to do the repairs and then claim them on the 2024 tax returns. Only you can answer this depending on what you have for taxes and what you are already claiming.

Sean Meyer · Answer

Well, I have already lived in the house for almost 7 years.  Not sure if that changes anything.

Sean

Sean Meyer · Answer

Thank you for the reply.  It jives with what I was already thinking.

Sean

should i wait to repair until after i move from my current house and before renting

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