Capital Expenditures For Real Estate
Owners of real estate need to be aware of two types of expenditures and their tax treatment for their real estate holdings.
1-Capital Expenditures, and
2-Ongoing or Ordinary Maintenance & Repairs
Capital Expenditures:
These are expenditures that adopt the property to a new or different use, extend or prolong its useful life, or increase the value of the property/asset. Capital expenditures are generally made for additions, betterments, improvements, and major items.
Ongoing or Ordinary Maintenance & Repairs:
These are expenditures that keep the property in working order. Ongoing or ordinary maintenance and repairs are generally made on an ongoing basis for minor items
Tax Treatment:
Capital Expenditures are added to the cost basis of the property. For a personal residence, they are not depreciated. For rental property, capital expenditures are depreciated according to the various IRS depreciation rules.
Ongoing or ordinary maintenance & repairs are not expensed for a personal residence but are expensed in the year incurred and or paid for a rental property.
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