TAX ANGLES FOR REAL ESTATE CONSTRUCTED OR ACQUIRED FOR RENT OR RESALE
There are several tax-related matters that you should consider if you contemplate:
1. Buying a fixer-up to improve and resell
2. Constructing a building for resale
3. Buying or building a property for rent.
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Not all expenditures are deductible as repairs
If an improvement has a useful life of more than one year, it should be depreciated over several years, not taken in a single year. Extensive remodeling or restoration cannot be charged off as a repair. Some examples of repairs: repainting, fixing leaks, and replacing broken windows—which do not materially increase the value of the property or prolong its useful life.
If you acquire several properties for resale or for rent:
You should generally maintain separate records for each property, but if you have a duplex or triplex, that would consitute just one property since you could not sell portions of the duplex or triplex separately.
If you have two houses or buildings which can be sold as separate structures, then you need to keep separate records. The most significant reason for this is because you might later sell them at different times and would need a separate cost basis to be used in calculating the gain or loss on the sale.
Depreciation recovery periods:
Appliances, furniture and carpeting… 5 years
Residential Real Estate…………….27.5 years
Non-residential Real Estate………..39 years
Land…………….Land cannot be depreciated
NOTE: If you buy the land and building you must allocate the cost between the land and building since only the building portion can be depreciated. The Tax Assessor’s property assessment may be indicative of the allocation ratio.
If you need IRS forms or publications:
This information is not intended to be advice to the recipient.In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.