I spent $5000 renovating a rental space for my wife's business. Where do I apply these expenditures in my taxes? From what I understand it is considered an 'improvement'.

[MargaretL · Accepted solution]

If you make a permanent improvement to a rented property, the cost must be depreciated.  When going through the TurboTax business income and expenses, enter the improvement as an Asset in the Business Assets section.  Your Asset is Real Estate Property, your date is the date you started to make improvements, category Qualified improvement property.

Examples of improvement:

• New bathrooms, interior office construction, energy efficient improvements.
• Remodeling of interior space, counters, lighting, security systems, walls/floors
• Common area improvements in a multi-tenant building

Improvements that are not permanent (do not add value to the leased property) are your repairs, and deducted as regular business expense.

[cwilliambrown]

Hi Margaret,
A previous question I posted directed me to your post. I have yet to file my 2018 return, as I am still tring to sort out a few things.

My wife and I have owned a hair salon for several years. We had been considering expanding the business to offer spa services. In 2018, the unit next door to us in a strip mall became available. We leased the unit and had it completely remodeled. It is not a separate business. In fact, the front door stays locked and all clients enter throught the salon to get to the spa.

Is this expansion classified in the manner your post mentions? And if so, are the remodeling/"bid out" costs the only costs included. Or are costs such as massage tables, furniture, decorations, and supplies all lumped into this one "Real Estate Property" asset? After rereading your post, I realize these items do not add permanent value, so Im guessing they are deducted as regular business expenses.

If you would confirm this for me, I would greatly appreciate it!

[cwilliambrown]

HI Again!

I just added the cost of building out the second/expansion unit into TurboTax exactly as you suggeted in your post and it gave me the options of spreading the deduction over 39 years, taking the entire deduction this year (2018) or taking a partial 179 deduction.

Thanks for any advise you can offer,

Charles