Deducting Improvements to Rental property that sold

[moushky]

What is the name of your state? TX

Last year we spent several thousand dollars remodeling a duplex we owned. We just closed on it last week. Since most of the money was actually spent in 2007, do we deduct those costs against our rental and royalty income for 2007 or do we deduct it as part of the cost of selling the property in 2008? What is the name of your state?What is the name of your state?

[LdiJ]

Originally Posted by moushky

What is the name of your state? TX

Last year we spent several thousand dollars remodeling a duplex we owned. We just closed on it last week. Since most of the money was actually spent in 2007, do we deduct those costs against our rental and royalty income for 2007 or do we deduct it as part of the cost of selling the property in 2008? What is the name of your state?What is the name of your state?

You would add it to your basis and reduce your capital gain for 2008.

[tranquility]

Depending on when the improvements were made, you could take some of the amount in 2007 and either recapture it or, if straight line, reduce the basis by that amount in 2008. Also, depending exactly on what you did, you may be able to take some as an expense in 2007. See a tax advisor this year, you may be able to change things a bit depending on the exact facts and your goals.

[moushky]

We repainted, replaced all doors, flooring, fixtures... no major structural remodeling was done. We started in October and paid for most of the repairs before the end of 2007. We're just trying to minimize our taxes in general, it isn't important to me if it's this year or next. The side we made most of the improvements on remained vacant through the sale of the property. When we put the property in service in 2004 it was valued at about 187K and we sold it for 270K (our economy is quite robust right now)

Thanks for your input, it is much appreciated.

[tranquility]

In general, I like to postpone taxes as much as possible. Also, I like to have the deduction against ordinary income rather than reducing my capital gains. Depending on the numbers, I'd take a fast depreciation and reduce income for 2007 and pay it with the recapture in 2008. The remaining portion will add to your basis for the sale.