Discussion:Investment property never ready for rental
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Discussion Forum Index --> Advanced Tax Questions --> Investment property never ready for rental
Discussion Forum Index --> Tax Questions --> Investment property never ready for rental
| 3 July 2009 | |
| have a client that bought 3 different properties in forclosure 3 years a go and has been fixing them up since and gutted the inside of one but has never had them ready for rent and now thinks they will demolition them to build new property. Question, I believe all the fix up stuff and the gutting is added to basis but she has paid property tax, interest, maintenance such as lawn care, utilitiy bills etc I assume these are deductable and if so on a schedule E??? I also no depreciation can be taken since they have never been ready for rent
anyone please confirm or deny my thoughts Neil | |
| 3 July 2009 | |
| deny - they were never available for rent
the real estate is deductible on Sch A though, the rest must be capitalized (and capitalized into the land if she demolishes the buildings she has been fixing up) | |
| 3 July 2009 | |
| read: http://www.taxalmanac.org/index.php/Discussion:Rental_property_expenses
Kevin H. says you must capitalize all of it. I tend to agree, since it has never been available for rent. You don't have a rental property until is available for rent, hence schedule E does not yet exist for this client. I always warn people to quickly get their properties into service or to at least finance everything until they are available for rent so they don't have too much capital/cash flow tied up in getting a property ready to rent. | |
RoyDaleOne (talk|edits) said: | 3 July 2009 |
| I don't believe that lawn mowing is an item that can be capitalized. See REV. RUL. 71-475 for the potential rule.
If the property would be classified as investment property, those items of maintenance maybe deductible as investment expenses as miscellaneous itemized deduction subject to the 2% floor. I don't know what the classification of the property would be. | |
| 3 July 2009 | |
| It is very important that your client documents the INTENT of the property. If it's intended to be future rental property then it won't be classified as investment property, right? | |
| 4 July 2009 | |
| All expenses get capitalized, including cutting the lawn. They are all expenses associated with rehabbing the property. If you don't cut the lawn, the city sends you a fine. That too, would be capitalizable. Noting gets expensed until the building goes into operation. If it is a muli-unit building, each unit can come online at different dates and then things must get separated between operating costs and construction costs. Operating costs are deductible. | |
RoyDaleOne (talk|edits) said: | 4 July 2009 |
| Quote from 71-475
"Advertising expense on unproductive property and maintenance and upkeep costs attributable to improved and unimproved unproductive real property are not carrying charges chargeable to capital account;", I believe this applies to the Section 266 election. Code Section 263A may require you to capitalize such costs in the factual situation under discussion, if the taxpayer produces real property as defined in 263A. If 263A applies to taxpayers who produce real property even if not for sale to their customers, and I do believe it does apply, 263A may require capitalization. On the other hand unless 263A applies the current position of the IRS lawn mowing is not to be capitalized under Section 266. You may capitalized the fine, however, unless the fine was deductible the amount of the fine can not be used to compute depreciation or gain on disposition. | |
| 6 July 2009 | |
| how about the cost of the demolition of the building? is this to be capitalized into the land cost and increase the basis of the land? | |
Death&Taxes (talk|edits) said: | 6 July 2009 |
| Sec. 280B | |
