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| *Loan,banking and credit>>>business tax |
I run a small business, can I deduct the cost of a recently purchased house on my taxes? |
Last semester I took a real estate class at the local college and the teacher discussed some people buying real estate as an investment and for a tax deduction. I run a small business unrelated to real estate but recently purchased a $40K home as a project/fixer-upper. I am unsure whether I will live in it after it is done or sell it. I currently live with my parents. Both the home and I are in Illinois and I paid cash for the house. There are a ton of deductions you can use from an investment property. All of the improvements and closing costs for example. There are also many more deductions available to the small business owner. See a reputable tax preparer and they will be well worth the expense. You do not receive any deductions for the house the way I am reading it. If you plan on selling it after it is fixed up the cost for the house (and all of the costs for fixing it up) are added together and subtracted from the proceeds from the sale. You would pay taxes on the difference. If you plan on renting the house out, the cost of the house as recovered as depreciation over the next 27.5 years. You have not decided whether this is going to be an investment or personal property. Either way, you will not be depreciating the property since it is not business use property. Keep all records of improvements, because however you use the property, the improvements will add to the basis of the house. Also retain the closing documents which will show expenses of sale that may be beneficial to you. You can deduct real estate taxes for this property regardless of its use. For 2006 you take your real estate taxes on Schedule A. Surely you're kidding. If the teacher suggested that you'd be able to deduct the cost of the house in this scheme, I'd go and demand my tuition money back! If you sell the house after you get it fixed up, the cost of the house, plus many of the expenses of fixing it up (not including anything for your labor, by the way) would be deducted from the selling price when calculating your gain - that gain will be taxable. If you live in the house instead of selling it, then if you eventually do sell it, the original cost plus some of the renovation expense will also be deducted from the sales price to figure your gain. The law has changed in the last few years, though, to allow you to NOT pay taxes the first $250K of gain (if you're single) as long as you own the house for two years out of the five immediately prior to the sale, and live in the house as your main home for two of those same five years. So if you decide to live there, make sure you stay for at least 2 years so you can get the exemption from paying capital gains tax. Good luck with your project. If you fix it up and sell it, you are subject to the Uniform Capitalization Rules. I can find no exception for property taxes anywhere, so you would have to capitalize them. you would get a deduction when you sold the property. If you end up living in the property, you may take the deduction. My advice is to not claim until you know what you are going to do. you can always do an amended return if and when you move in. Someone has already commented on the two-year rule to exempt the gain if you do move in. It is worth remembering that. |
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