repair cost

[big h 0]

Hello,

 

I bought a property last year as a handyman. I fixed it up and lease optioned to a tenant buyer.

I understand that the option money does not have to be taxed until the option is exercised.

What about any repair cost? Would that typically be claimed during the year i bought it or the year the option is exercised?

 

Thanks is advance for your help!

Gary

[Dave T 0]

The repairs you made are adjustments to basis and are not expensed. They are included in the "cost of goods sold" on Schedule C when the option is exercised. In addition to your purchase and settlement costs, nearly every penny you spend on this property is included in the cost of goods sold to include preventive maintenance, general upkeep and repairs, and utilities.

 

The income you receive from your tenant/buyer is Schedule C income. Mortgage interest could be business interest expense on your Schedule C.

 

Consult your tax advisor for specific details.

[Cassidy.West 0]

There's a difference between repairs and improvements, and it sounds like everything you did is considered an improvement.

Repairs can be expensed while improvements must be capitalized.

 

I'm not sure about your specific situation, so you should do a little more research. There's a nice explanation at realtaxtips.com in the schedule E section under the repair category and the supplies category, you may want to read up on that.

[Dave T 0]

Casssidy,

 

big h is flipping his property. He can not use Schedule E because this is not an investment rental.

 

In his situation, all repair AND improvement costs are adjustments to basis.

 

I would not rely on realtaxtips.com for my tax advice. Those tips are suggestions submitted by sometimes misinformed forum members who may not be tax professionals.