Industry News

How to avoid the house-repair tax trap

Real Estate Tax Talk

The ROI Producing Real Estate Event of the Summer
Reach top decision-makers at Inman Connect

Last week we explained how home improvements can provide homeowners with tax benefits when the home is sold because the cost is added to the home's tax basis. In contrast, home repairs (there is an important distinction) provide no tax benefits at all. However, if you understand and apply the rules, you can turn repairs into improvements for tax purposes. Under what the Internal Revenue Service calls the "general plan of improvement" rule, an expense that is incurred as part of an overall plan of improvement, rehabilitation, or modernization constitutes an improvement -- even though the same expense, standing alone, would be a repair. For example, patching a roof would ordinarily constitute a repair, but it can be treated as an improvement if it is part of a general plan of improvement. You have a general plan of improvement when you undertake a number of repairs at about the same time, or consecutively, to achieve an overall goal: remodeling, rehabilitating, or...