Rental Houses - Repairs all deductible?

[giogis245]

Client bought 2 investment properties in 2022, they renovated them completely, between the 2 units they spent $50K in new furances, kitchens, floorings, lighting, paint, bathrooms in material and labor. Their contractor buys the materials and they just make a check out to the contractor for material and labor then send him a 1099. Just seems like such a big number, can they really write off all of it?

[BulldogTom]

3 minutes ago, giogis245 said:

they renovated them completely,    new furances, kitchens, floorings, lighting, paint, bathrooms 

That sounds like improvements, depreciated over 27.5 years for residential rental property.   The post implies that they did the work before they rented out the property, which makes me feel more strongly that is part of the acquisition cost and depreciated over the life of the building.   

Tom
Longview, TX

[Abby Normal]

The repair regs did open up a lot of things to being expensed, but there isn't quite enough info to decide.

Here's a related article: https://www.thetaxadviser.com/newsletters/2021/apr/expensing-hvac-costs.html

Here's the pertinent IRS page: https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations

 

[Margaret CPA in OH]

And look into segregation of items that could have different lives but have to be identified.

[jklcpa]

2 hours ago, giogis245 said:

Client bought 2 investment properties in 2022, they renovated them completely, between the 2 units they spent $50K in new furances, kitchens, floorings, lighting, paint, bathrooms in material and labor. Their contractor buys the materials and they just make a check out to the contractor for material and labor then send him a 1099. Just seems like such a big number, can they really write off all of it?

 

5 minutes ago, Margaret CPA in OH said:

And look into segregation of items that could have different lives but have to be identified.

Expenses for repairs and renovations prior to being placed in service must be capitalized and depreciated. IRS Reg. § 1.263(a)-2(d)(1)).   Repair expenses after being placed in service must follow the repair regs, and Abby Normal's second link takes you to the IRS page as a starting point.

I agree with Margaret that you should segregate as much as possible because there may be some items may have shorter lives (such as kitchen appliances) vs improvements or items considered part of the building that are depreciated over longer lives. 

[Abby Normal]

19 hours ago, jklcpa said:

 

Expenses for repairs and renovations prior to being placed in service must be capitalized and depreciated. IRS Reg. § 1.263(a)-2(d)(1)).   Repair expenses after being placed in service must follow the repair regs, and Abby Normal's second link takes you to the IRS page as a starting point.

I agree with Margaret that you should segregate as much as possible because there may be some items may have shorter lives (such as kitchen appliances) vs improvements or items considered part of the building that are depreciated over longer lives. 

And sidewalks, driveways, fences, etc. are land improvements depreciated over 15 years. Of course, valuing those would be difficult without a cost segregaton study and that may not be worth it for these properties.