If I purchase investment property for cash, can I deduct land value as business expense?

shad-m-reese — Sat, 01 Jun 2019 00:29:14 GMT

No. Doesn't work that way. What is this investment proper...

Carl — Sat, 01 Jun 2019 00:29:16 GMT

No. Doesn't work that way. What is this investment property? Farm land for crops? Farm land for cattle? Raw land? Residential Rental property? Commercial rental property? Something else? It matters for how/where/if you deal with this on your 2015 tax return.

The Investment property is a rental property. Thank you!

shad-m-reese — Sat, 01 Jun 2019 00:29:18 GMT

The Investment property is a rental property. Thank you!

Thanks!! Your response was very informative, complete, a...

shad-m-reese — Sat, 01 Jun 2019 00:29:19 GMT

Thanks!! Your response was very informative, complete, and helpful. TurboTax 4 Life ;o)

Know this also. Since you paid cash, you will not be able...

Carl — Sat, 01 Jun 2019 00:29:20 GMT

Know this also. Since you paid cash, you will not be able to deduct hardly any (if any at all) of your sales expenses. It sucks, but that's the way the tax laws are written.

So is the only part of the property investment that is de...

antiquedmirror — Sat, 01 Jun 2019 00:29:24 GMT

So is the only part of the property investment that is deductible the interest? Why is it that house flippers avoid paying large amounts of taxes by reinvesting the earnings from the sale of 1 house into the purchase of the next?

Based on my understanding of things, you owned rental pro...

Carl — Sat, 01 Jun 2019 00:29:28 GMT

Based on my understanding of things, you owned rental property which is a different type of investment property. House flippers don't rent out their property before they sell it. They buy it, fix it up, then sell it. If you had rental property, then you rented it out thus producing income before you sold it. So that's not a flip per-se.

You'll report everything on a SCH E. Under the Business t...

Carl — Sat, 01 Jun 2019 00:29:32 GMT

You'll report everything on a SCH E. Under the Business tab elect to start/update Rental & Royalty Income (SCH E) and go from there. Here's some information/clarification you will find useful, so that you report it correctly.

Date of Conversion: If asked for this, it's either the date you closed on the property, or one day after you moved out of it and it was no longer your primary residence or 2nd home.

In Service Date: The first day a renter *COULD* have moved in. This is generally the day you put the FOR RENT sign in the front yard.

Days rented: The number of days you had a renter contracted to occupy the property. Weather they actually occupied it or not, is irrelevant. If you had vacant time between two renters, then those days count as days rented, provided you did not live in the property for one single day during the period of vacancy between renters.

Days of Personal Use: The number of days you lived in the property *WHILE IT WAS CLASSIFIED AS A RENTAL*. The days you lived in the property before the conversion date, *do not count for anything*.

RENTAL POPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

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.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not classified as cleaning/maintenance costs. They are instead classified as startup costs, amortized as such and depreciated over time.

Repair

Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are classified as startup costs, amortized as such and depreciated over time.

Startup Costs

Please note that if residential rental income is not your PRIMARY business, and your PRIMARY source of income, then your rental business is considered to be passive, and you flat out, no way, no how , are not allowed to deduct your startup costs. Period. The IRS says so. See https://www.irs.gov/pub/irs-drop/rr-99-23.pdf and please take note that rental property produces “passive” income, while other types of businesses produce “active” income. Your rental property is not classified as your “active” business, unless you are a real estate professional, an active participant in the management of the property, and it provides a substantial (more than half) amount of your taxable income for the year. All three requirements must be met. There are no exceptions

Start up costs are expenses incurred while preparing the property for rent, with the express purpose being to prepare it for rent, before it is available for rent. These costs do include repair, cleaning and non-recurring maintenance cost. It does NOT include property improvements. With a normal business that produces active income (rental income is passive) you would amortize these costs over 15 years. But you can’t do that with a rental property. However, you can deduct a maximum of $5000 in startup costs in the first year the rental is available for rent, PROVIDED your total startup costs do not exeed $50,000. This is reported on line 18, “Other Expenses” of SCH E, and should be labeled “start up expenses”.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a 2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.

topic If I purchase investment property for cash, can I deduct land value as business expense? in Deductions & credits

If I purchase investment property for cash, can I deduct land value as business expense?

No. Doesn't work that way. What is this investment proper...

The Investment property is a rental property. Thank you!

Thanks!! Your response was very informative, complete, a...

Know this also. Since you paid cash, you will not be able...

So is the only part of the property investment that is de...

Based on my understanding of things, you owned rental pro...

You'll report everything on a SCH E. Under the Business t...