Taxation on Improvements to a new rental property

[Axy Parikh]

I am investing in my first rental property and need help navigating a few basic questions:

- If I make improvements to this rental property, how is it taxed? (Is it considered expense and can be deducted at one go? Is it part of standard deduction?)

- Need help with a rough calculation of income and expenses from tax perspective (Rent: 1k, Property Cost: 100k). Expenses - 300 HOA, Interest 290, Property Tax 100, Insurance 60. In this case my profit will be 1000 - (300+290+100+60) = 250/Month which is 3k/Annum. How does standard deduction, other expenses (like repairs) affect this inclusion of 3k to my income?

[Basit Siddiqi]

Hi @Axy Parikh

Welcome to Biggerpockets!
Congrats on your first rental property!

1) It depends - 
If it is a repair - It is expensed in the current year.
It if is an improvement - it should be capitalized(if the amount is below $2,500 and you make certain elections - it can be currently deducted).

repairs maintain the property
improvements increase the life of the property, increase the value of a property or make the property more efficient.

2) The great thing about real estate is that they allow depreciation.
based on a purchase price of $100,000 where land is allocated $20,000 and the building $80,000 and purchased on January 1st. you would be entitled to a $2900 deduction to net you to $100 of taxable income less any repairs.

Are you managing the property yourself? if not you should factor in the property management fees.

Standard deduction should be looked at separately outside of looking at the income/losses from real estate. But you are entitled to take a standard deduction on top of the expenses named above.