All Forum Posts by: Joe Taylor

I am reading on the safe harbor rule, and it appears quite limited in it's application.

To take this election:

• Your gross receipts, including all your other income, are $10,000,000 or less.
• Your eligible building has an unadjusted basis of $1,000,000 or less.
• The cost of all repairs, maintenance and improvements is less than or equal to the smallest of these limits:
  • 2% of the unadjusted basis of your building or
  • $10,000

The hangup I have is 2% of the building's basis. Let's say the building is $100K to $200K range, after only $4,000 in repairs or improvements I am disqualified from using the safe harbor rule on that property. Do you agree?

Thanks for the reply. Where I get nervous is using the safe harbor $2,500 per unit of property, and those all together sum to a large amount, say $20,000 to $30,000 on a SFR that generated only $10,000 in income that year. Seems like that would raise a flag to expense that much. I guess with my receipts I'd have a defensible position. Thoughts?

Thanks again.

Good morning all... I purchased a residential property for a long term corporate client in November 2017.  The client asked for some remodel work to be done and expects to move in on March 1 2018.  It's pretty significant, let's say $20,000.  Typically the "in-service" date is when it's advertised for rent - in this case, it's leased but they aren't moved in yet. How would you treat the remodel costs (and depreciation/in-service date for the property) for you 2017 tax return?  

Thanks

Thanks Scott. Looks like $25,000 is the limit and your suggestion seems like a good one. I put in a call with my local CPA and will report back if we decide on anything different.

Thanks @Jeff B. for your input. There are a number of reasons why I might choose to cover this expense even though legally not required to do so.

I'm wondering about using the rule in 26 US Code 190 to expense, instead of capitalize, costs to improve accessibility, whether it's ramps, widening doorways, etc. The code states I have to make an election to make this deduction/expense - how exactly would I do this? Would I just add those costs in with any repairs and include some sort of statement with my tax return?

I have 10+ SFH properties and usually my return is simple enough to use TurboTax. Last year I made some modifications to one to accommodate a disabled tenant and would like to expense those modifications if possible. It looks like this is allowed up to an amount and I just want to be sure I do it properly. Thank you!

I have done this many times over the years, typically on a smaller scale though and not worried about the loss on the disposed asset(s).  I agree, I would not recommend generally, however I have found several instances where it can be a win-win situation. I am looking at one deal now though where the disposition may run $5,000+ so it's worth taking the loss if appropriate.  I plan to talk to my CPA however I always like more input!

Thanks again.

Hello everyone,

I'm seeking opinions on the tax treatment of remodeling in certain situations. For example, let's pretend I purchase a house for $90K, misc rehab is $10K, so I'm "all-in" rent-ready at $100K and advertised rent is $1K.  House is move-in ready and tenant would rather have a whirlpool tub and a double vanity, a bathroom redo costing $10K. Tenant intends to stay long-term and would pay an above-market rent.  So a few questions for the CPAs and others out there - 

(1) Being a new purchase would you just add the remodel to your cost basis or separately depreciate?  

(2) Would you take some deduction for the existing components (tub, vanity, etc) that were in good working condition yet were disposed?  Seems like a loss to me.  If so, how and how would you estimate the value?

Any other thoughts and experiences would be appreciated.

Thanks,

Joe