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Old 01-30-2014, 01:52 PM
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Can I deduct expenses of home remodel because I have a roommate

Hi All,
I purchased a new home this past September and have a roommate living with me paying $450 / month. Since moving in I have spent about $25k on remodeling the home. A lot of this has been on a new AC, furnace, windows, washer / dryer, flooring and paint to name the big ones. My question is if I claim the roommates rent as income can I also deduct a percentage of this $25k? Or get depreciation on the home? I don't know if it matters or not but in the long run (maybe a year out) I plan on turning this into a rental house completely and moving out myself. I am not sure if this is even possible but if it is I then plan to take my info to a tax professional since it will make my return a little more complicated but if it is absolutely not possible I will do the return myself.

Thanks for any help!
Andrew



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Old 01-30-2014, 04:00 PM
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Quote:
Originally Posted by ammosman View Post


#1;I purchased a new home this past September and have a roommate living with me paying $450 / month. Since moving in I have spent about $25k on remodeling the home. A lot of this has been on a new AC, furnace, windows, washer / dryer, flooring and paint to name the big ones. My question is if I claim the roommates rent as income can I also deduct a percentage of this $25k?




#2;Or get depreciation on the home? I don't know if it matters or not but in the long run (maybe a year out) I plan on turning this into a rental house completely and moving out myself. I am not sure if this is even possible but if it is I then plan to take my info to a tax professional since it will make my return a little more complicated but if it is absolutely not possible I will do the return myself.


Andrew
#1;Every time you spend any money to improve the property, you can write it off, either as an expense in the year it was made or proportionally, over the improvement's useful life. The improvement may generate increased rents or result in decreased vacancy or both and will likely increase the property's value. When you go to sell the property at a higher price, you will pay lower taxes on the profit than you will on your ordinary income. Any improvement with a useful life of more than one year that is subject to wearing out or becoming obsolete can be depreciated. Depreciation is a method of recovering business costs over time. On a rental property, the building itself is depreciable, as are each of the improvements. Several depreciation methods can be used, but the most common is the straight-line depreciation system. Under this method, a building is depreciated over 27.5 years. Each component that was separately improved is also depreciated over its own time frame. The IRS provides a list of improvement classes with its assessment of useful life duration. Appliances, for instance, are assigned a five-year depreciation under this system. If the appliance cost $500, you would show a $100 expense for its depreciation each year for five years. The IRS allows you to write off every expense associated with your rental property that is both ordinary and necessary to run your rental business. It explicitly includes advertising, cleaning, commissions, insurance, mortgage interest, repairs, tax return preparation fees, travel expenses, utilities and postage. Just because an expense is not listed in one of the IRS' publications does not mean you cannot claim it. Rather, you must document the expense and be prepared to make your case should you be audited. Claiming expenses is easy. Proving them takes some degree of organization and discipline. Keep records. You might need to show them to prospective buyers, who may ask to see your documents to verify new improvements are truly new and to determine what likely maintenance costs are. You might also need the documents to prepare your taxes. You are required to prove every expense you claim, and if you're audited and can't do it, expect a truckload of problems that could extend back into prior tax years and forward into the future. The IRS points out that federal law does not specify the type of records required but, rather, expects records to clearly demonstrate both income and expenses



#2;As mentioned above.



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Old 01-30-2014, 04:05 PM
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Thanks for the reply Wnhough! Since I am currently living in the home as well do I only get to claim 50% of these expenses since the home is shared between the two of us?



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Old 01-30-2014, 04:18 PM
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Correct; you can deduct rental exp on SCh E of 1040 while you still need to deduct personal use house exp,i.e. mortgage interes,r/e tax or etc on Sch A of 1040.however, for p ersonal home case, The IRS considers repairs and renovations on your personal residence to be personal expenditures, not business expenditures. So unless special circumstances apply, such as the use of part of your home for business/rental/investment or etrc purposes ,you cannot take a current-year tax deduction for maintenance costs and renovations on your personal residence. Wheyou dispose of it later,you must recapture the unrecp depfre as ordinary income taxed at 25% if your marginal tax rate is at 25% or higher as long as you have taxable LTCG.



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