Rental Rehab Costs and the new Trump Tax Plan

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I recently received this question. Got a tax or accounting question? Here’s how to get your question answered.

A reader wrote:

“I heard that it was possible to write off all of a rental rehab under the new Trump Tax Plan. Is that right?”

Like a lot of tax questions, the answer is, “It depends.”

You are able to take a 100% deduction for normally capitalized items provided:

  • The cost was not part of the original purchase,
  • The property was already put in place, and
  • The class life for the property is 20 years or less.

In other words, if you add-on a room to your residential rental property, most of the cost will be related to the structure itself. That’s 27.5 life property and so it won’t be immediately deductible. However, the cost of the cabinets, flooring and HVAC system (among other personal property expenses) will be 100% deductible.

If these rehab costs were part of the original purchase, it won’t work. If the property was rehabbed before it was put in service, it won’t work. And if the class life is longer than 20 years, it won’t work.

Also, remember that just because you get the write-off, it doesn’t mean it will help your tax situation. If your adjusted gross income is over $100,000, your real estate losses may be limited and you end up with suspended losses.

Check with an expert regarding your own particular situation.

One Comment

  1. Linda says:

    How are LLCs treated under new tax laws?

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