topic Rental Property has one time large expense, pay installment or lump sum? in Get your taxes done using TurboTax

Rental Property has one time large expense, pay installment or lump sum?

starcraft2temp — Wed, 29 Jan 2020 22:17:48 GMT

My rental property recently had an one time repair. The HOA presented two options for owners to pay for the repairs cost:

#1 Pay off in lump sum ($10k)

#2 Pay off over the period of 5 years via increased monthly HOA fee (increase of $200/month). Interest rate is roughly 5%.

I have sufficient cash to pay off in lump sum, but the question is which is better for my taxes? From past experience think i was able to deduct monthly HOA fee as expenses. If I were to choose option #1 is the lump sum be deductible as well?

Thank you for reading, appreciate any responses.

Re: Rental Property has one time large expense, pay installment or lump sum?

RobertG — Thu, 30 Jan 2020 23:28:03 GMT

If the assessment is clearly a repair, rather than an improvement then it would be deductible. If the expense makes the property more valuable or extends the useful life of the building it is an improvement and would have to be capitalized and depreciated over its useful life.

You also need to consider if this would create a passive loss that could not be claimed in the current year.

Here is a good discussion of repair vs improvement: IRS Clarifies Capital Improvement vs Repair Expense?

Re: Rental Property has one time large expense, pay installment or lump sum?

starcraft2temp — Sat, 01 Feb 2020 06:51:53 GMT

Thanks for the response. In my case it was the boiler as part of the heating system in the building.

I read if an entire system is replaced then it usually counts as improvement, if something is repaired then it's a fix. I really dont know how to distinguish in this case bc the boiler is part of the entire heating system. This impacts every unit in the building.