This year we had a rental property that we fixed up but then put on the market for sale. How do we handle the cost of the repairs?

[ronljames]

We rented the property for 6 months of which we only collected 3 months rent. Going to small claims for the balance including damages. After renovating we decided to sale rather than continue to rent. The property went under contract Jan 2018 so I'll handle the sale next year. I just need to know if I can deduct the cost of the renovation against the rents as a loss in 2017. Thanks

[DanO · Accepted solution]

Depending on the extent of the work that was done on the rental, you may or may not be able to deduct any of the costs as a rental expense on your Schedule E.  Basic repairs are for the maintenance of the property to keep it in working condition, and not for the improvement, restoration, or for the adaptation to a different use than what was originally intended.  These repairs are deductible expenses, unless they were performed in conjunction with the improvements.

Improvements add value to the property, and the costs are added to the basis of the property when the sale is made. These costs can be depreciated over a 27.5 year period of time to help reduce taxes yearly.   

Click here for more information and see page 5 for Examples of Improvements.