Hi All,

I scrolled back quite a ways, and didn't see this question so I'll ask:

I own a home and rent out the basement as its own apartment. My residence is not an actual duplex, but rather a single-family home (one address) set up as two units.

A friend suggested I may be able to deduct some of my recent remodeling costs on this year's taxes -- I'm not sure how. They couldn't explain why, and I can't think of a reason this would be true.

Any thoughts?

~dswing

Do you file a Schedule E on this? Schedule E seems like the place to do it. Repairs can be deducted immediately, but capital improvements have to be depreciated.

If you have not been reporting the income and expenses for the "apartment" on schedule E, you should have (and you can amend your returns for the past three years. If you are renting it for an amount well below 'market', your deduction for expenses will be limited to the amount of the rent you report. You can deduct operating expenses including a portion of your insurance, utilities, etc. and any repairs to the basement unit (and a portion of "general" repairs (eg, repairing a broken sewer line). You can depreciate the baement unit share of the cost of your home (excluding the land), and you can depreciate any improvements to the basement unit. You really need to hire a professional to get things set uo properly (most especially if you have not been reporting this in prior years). It will save you a lot more than it costs. You may be able to handle it yourself there after; on the other hand you may find you have found a true friend in your tax man/woman. Suerte! (good luck).

A friend suggested I may be able to deduct some of my recent remodeling costs on this year's taxes -- I'm not sure how. They couldn't explain why, and I can't think of a reason this would be true.

I'm assuming that these are major remodeling costs, not simple repairs to the property. If the remodeling was for the basement apartment, I'd say it could be depreciated as improvements to the rental unit. If the improvements were elsewhere in the house, they add to the basis of your personal residence, possibly reducing a taxable gain in the future.

Either way, you want to keep track of them, as they affect your taxes in some tax year - either currently or in the future.

--Peter

Thanks a lot for the info, I'm sure my tax advisor will know how to handle it.

This is my first year as a property owner, so I haven't had this situation in the past. Sounds like it could be a good one though!

How do I know if my rental income is "below market value" ?

~dswing

In some states [VA] if you ask before you do improvements, you MAY be able to get a break on the higher property taxes you will probably pay

Improving a home for elderly accessibility can be a medical expense [depending]

And, of course, almost all improvements [keep good records] will adjust your cost basis when you sell thereby decreasing your capital gain