[Answer edited to remove investment treatment 3-1-17 10:31 am PST]
No, generally you can't claim expenses for major renovations/improvements. Property
improvements get added to your property's cost basis.
When you sell the asset, your cost basis gets subtracted from the money you collect from the sale. So instead of paying tax on the full amount, you only get taxed on the profit (the selling price minus the cost basis).
Capital Expenses, Improvements, Renovations:
Because you are investing in a property with the goal to improve it, the money you pay to buy and repair the house are considered capital expenditures. The IRS allows you to deduct capital expenditures from your taxable income, but only after you sell the property. Generally, the capital expenditures will offset a majority of the profit gained from the flip and reduce your taxable income.
Cost basis
is the original purchase cost of an asset (such as stocks, bonds, or property), plus any adjustments that result from transactions over the period you own the asset. Examples of adjustments would be an increase in valuation due to a property improvement, or a decrease in valuation due to unreimbursed storm damage to the property.
If flipping houses is your business,
it would go on Schedule
C. This would be a different business than your Real Estate business.
To enter this as business income:.
- Sign
in to TurboTax.
- Click
on the orange Take me to my
return button.
- Type sch c in the search/find
bar and click search/find.
- Click
on Jump to sch c.
- Click
on start/edit or Add Another Business.
- At
the Your XXX Business screen:
- To
enter your income, scroll down to Business
Income. Click Start/Update. Click Start/Update next to General Income.
- To
enter your business expenses, scroll down to Business Expenses, Other
Common Business Expenses. Click Start/Edit.
- Continue with the onscreen interview.
Related
Information:
