Can include these in the cost basis of my property? - New fridge, wine cooler, hood, shades - Capital assessments (one-time & monthly) - Building fees for alteration

[rahulv85]

For context these costs are part of complete gut renovation of my cooperative apartment

[JohnB5677]

No, these items should have been expensed on the property as they happened.

• I'm not sure what capital assessments are.
• If building alterations were substantial they may qualify

[Hal_Al]

Q. Can I  include the costs  of a complete gut renovation of my cooperative apartment in my cost basis? 

A. Yes, generally. You cannot include things that would be classified as furnishings (refrigerator, shades).  

What does "my property" mean? Your home, your rental property? The answer is the same either way, but dome of that could be expenses or depreciated for rental property. 

[rahulv85]

My property was my primary residence for some time. I did the gut renovations when I had initially acquired the property while it was my primary residence and subsequently after living there for a few years, I converted it to a long-term rental. 

The gut renovations of the co-op apartment were substantial and also included renovating the kitchen inclusive of installing new appliances such a fridge, wine cooler and hood. As part of renovations, I had also installed new shades. Can I add the new kitchen appliances and shades to the apartment cost basis before I converted to a rental? 

[rahulv85]

Thanks. It is a cooperative apartment and I renovated it was while it was my primary residence and years later I converted to a rental. I am a bit confused - So can I add the cost of new fridge, hood, wine cooler to the apartment cost basis as it was done as part of a complete gut renovation? 

I cant expense it as it was a primary residence when I did the gut renovations. So only option is to capitalize it to the cost basis.

[Mike9241]

when you convert personal/real property to rental use, the basis for depreciation is the lower of cost or Fair Market Value on that date. 

[rahulv85]

Yes thank you. But can i add those items in the cost basis ?

[rahulv85]

@Mike9241 @Hal_Al 

Thank you, I would like to clarify the following:

1. When my property was a primary residence, as part of gut renovations, can i include in the cost basis the cost of new fridge, wine cooler, hob and shades? 

2. Before converting the primary residence to rental, all capital assessments get included in the cost basis? 

3.  After converting the primary residence to rental, all capital assessments get expensed?

[DianeW777]

Yes, you can add capital improvements to the cost basis, or you have one other choice if you qualify so continue to review the rest of this answer. Keep in mind that on the day of conversion, the depreciable cost is the lesser of actual cost or fair market value (FMV) on that date. Since land usually appreciates, cost is most often the amount to use, depending on the neighborhood where your home resides.

1. The new fridge, wine cooler, hob are appliances and the shades can all be depreciated over five years.
2. Yes, you will simply use the purchase price of your home. To determine the land value use the tax assessment from the city or county whre it is situated.  Enter the entire cost when asked and then only the land portion when asked.
3. They are depreciated over time however you do have one other option called DeMinimis Safe Harbor (DMSH) and/or Safe harbor Election for Small Taxpayers.

The appliances may be depreciated or you can choose the DeMinimis Safe Harbor (DMSH) election to take the expense in full.

• What can I depreciate or expense with the business safe harbor method?
• How do I handle capital improvements and depreciation for my rental?

Safe harbor Election for Small Taxpayers.  These are two different safe harbor methods and this one is for capital improvements if you qualify.

• Rules for this method for capital improvements:
  • Your gross receipts, including all your other income, are $10,000,000 or less.
  • Your eligible building has an unadjusted basis of $1,000,000 or less.
  • The cost of all repairs, maintenance and improvements is less than or equal to the smallest of these limits:
    • 2% of the unadjusted basis of your building or
    • $10,000

Either or both safe harbor elections would be entered in the rental activity using Miscellaneous expenses if you choose this method.

• Enter your description and amount 

Keep close track of these expenses because they will be used to reduce cost basis at the time of a future sale, thereby increasing gain at that time.

@rahulv85 

[rahulv85]

Thank you @DianeW777 

I did the gut renovation of my primary residence and converted to rental years later.

1. Can I just not add the cost of the appliances + shades to the cost basis as improvements and depreciate the total cost basis of the apartment over 27.5 years as I have now converted to rental? The reason I ask is that the gut renovation happened when the apartment was my primary residence and years later I converted it to a rental. 

2. I own an apartment in a co-op building (with 200+ apartments). In this case, I dont own any land so can I keep land value as 0 and improvement value as all the cost basis of the apartment (including $ spent on renovation)? 

[DianeW777]

Yes, you can include the total of all improvements to your rental house as one asset since the renovations included installation of these items.

Yes, the land value would be zero since no land is associated with the rental apartment.

@rahulv85