ddaily
2008-03-27 14:38
If you roll your rehab cost into a double close-contract to perm, I am assuming that the rehab cost are not deductable because it is not your own money. Is that correct?
If you roll your rehab cost into a double close-contract to perm, I am assuming that the rehab cost are not deductable because it is not your own money. Is that correct?
The cost is just being financed, it's still a cost.
Check w/ a CPA how lumpsum or over time you take the deduction.
[ Edited by cjmazur on Date 03/27/2008 ]
Rehab expenses are capital costs- they form a part of your basis, depreciated over 27.5 years or deducted from your sale revenue to calculate your profit.
Although borrowed money is not income, expenses paid with borrowed money are still expenses. Buy and hold rehabbers using borrowed money thus find that expenses and depreciation tend to far exceed income, and so look for ways to reduce depreciation to avoid future recapture. For example, land value is not part of your depreciable basis. The IRS will allow you to use the assessed valuation of the land, or the percentage of the total assessment attributed to the land. Most prefer to use the lower number and thus have more depreciation, but if you rehab and rent using OPM you may well find it beneficial to use the larger number and claim less depreciation.
Chris
make sure you understand what can be expensed and what needs to be capitalized and over what useful life.
Thank you. Yes i am not well versed in taxes yet. Although I do have 4 houses and did my taxes this year using 27.5 depreciation and itemized appliances on a shoter life. Looks like next year I will going to a CPA or a tax class. thanks again.