Should I repair the pool on my rental property/primary residence if I am planning on selling with the next couple of year? What tax deductions apply? Is it beneficial?

[ramirez-156]

The pool was in disarray when I bought the property.  The property is my private residence and the rental includes a room and shared usage of the rest of the property.  I was considering repairing the pool to help sell it in the future but don't know it it will be beneficial or a detriment due to the tax implications.  Can it be expensed as repairs to the rental property?

[Opus 17]

If you rent part of your primary residence, you can expense a portion of your repair expenses as long as they pertain to the entire property.  

But it will also be important to determine if this is a repair or an improvement.  A repair restores property to as-is or as-was condition, and repairs can be expensed.   An improvement is a betterment -- it makes the property more valuable, or extends the useful life of the property or one of its subsystems.

For example, fixing a hole in the roof caused by a tree branch blown down by a storm is a repair.  Replacing the entire roof with new 30-year shingles is an improvement.

The part of the improvement that can be allocated to the rental is depreciated over 27.5 years, the part of the improvement allocated to your personal residence is not deductible, but it increases the cost basis of the home and may reduce your capital gains when you sell.

You can only expense a portion of repairs if you actually rent out the room at market rates.  And the depreciation has to be repaid (recaptured) so the advantage of depreciating an improvement is fairly small in the short run.  (Note, however, that when selling, you have to repay depreciation you took or could have taken, even if you didn't take it.)

And I believe some of the rules are different when renting a part of your residence, as opposed to renting a separate property.

Most important I would think, is whether fixing the pool will be personally enjoyable, or will help you sell the property if you really plan on selling in a couple of years.  The tax consequences are likely to be only very modestly in your favor if at all.

@Carl ?

[Critter]

I agree ... especially with the last statement ... fix the pool if it make sense or is needed but you will get little to no real tax benefit for doing so.

[Carl]

No, you just flat out can not expense it as a rental expense. That's because it meets the requirements to be classified as a property improvement.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Here's how this works for your situation.

That percentage of your primary residence that is "exclusive to the renter" is the percentage of your cost basis that is depreciated. So say you have a two bedroom two bath house. If one of the bathrooms is only accessible from the bedroom (as is common with a master bath) and that is the bedroom you are renting out, then both that bedroom and the attached bath are without question, "exclusive to the renter". If those two rooms together comprise 15% of your total floor space, then 15% of your cost-basis is depreciated over 27.5 years. Now you have an in ground pool in the back that as I understand it, in it's present state is unusable.

Doing what is necessary to bring this pool to a useable state will without question, be an improvement to the property that will (also without question) increase the value of the property. So for tax purposes ( stress *T*A*X* purposes!) that will be a property improvement, not a repair. Therefore your costs for this will be capitalized with the appropriate percentage depreciated over 27.5 years.

You enter your *total* cost of the improvement in the assets/depreciation section, making sure to declare the business use percentage that matches your floor space percentage. So using my numbers above, if I'm renting out 15% of my floorspace to the renter for their exclusive use, I will declare my pool property improvements to be 15% business use. That will depreciate 15% of the cost of the pool over the next 27.5 years starting on the date you place that pool "in service", which will be the first day it is available for use, weather it's actually used on that day or not.