How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask R. Klein, EA Your Own Question

R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2882
Experience:  Over 20 Years experience
63817126
Type Your Tax Question Here...
R. Klein, EA is online now
A new question is answered every 9 seconds

U.S. Federal Income Tax and California Income Tax Question:

Resolved Question:

U.S. Federal Income Tax and California Income Tax Question:

I purchased a foreclosure condominium with significant deferred maintenance issues 10 months ago. I will gross roughly $24,000 for tax year 2013 from a disability annuity. My husband will gross roughly $125,000 from his job as a production engineer.

My husband will have roughly $25,000 federal withholding for tax year 2013 due to the number of exemptions he claims on his Form W-4 (2013).

I plan to pay roughly $20,000 to repair the condominium (rental expense?) to rent during the months of October, November and December of 2013 (rental income is expected to be $1,500/month or a total of $4,500 for tax 2013). These repairs to the condominium must be done before I can rent the unit. I plan to continue renting the condominium during all of 2014.

If my husband and I file a joint tax return for 2013 (we filed jointly for 2010, 2011 and 2012), can I deduct the full $20,000 I pay to prepare the condominium for rental during the last three months of 2013, from our joint 2013 Federal and California tax returns? In other words, can the $20,000 in rental preparation expense be used to offset my husband’s income from his job as a production engineer (after offsetting the rental income of $4,500 for tax year 2013).
Submitted: 1 year ago.
Category: Tax
Expert:  R. Klein, EA replied 1 year ago.

Randalltax : Thank you for your question. There are two main issues you bring up.
Randalltax : First, determining the difference between a repair and a capital improvement is crucial.
Randalltax : In general, if you are making a repair to extend the life of an item, it can be deducted as a repair, while replacing an item that starts a new "life" must be depreciated. Normal residential depreciation is over a 27.5 year period, so very little is deducted each year.
Randalltax : an example is HVAC unit. You might need to replace a blower motor, which might be considered a repair, but lets say you need to replace the entire exterior condenser. Since that is a major component, you would have to depreciate this as a capital replacement.
Randalltax : another rule of thumb is if the repairs in total cost more than 10% of the value. If so, you are likely considered to have a capital expense. In the case of work so major that you likely cannot even make the unit available until major components are fixed, such as roofing, etc, then you likely will categorize the entire job as a capital improvement and will not be able to deduct any of the repairs in the first yea as an expense.
Randalltax : all of this might be moot anyway, based on your income.
Randalltax : when your AGI is over 100k, you are subject to the start of limitations on deducting losses in a passive activity ( which all rentals are passive). When your income is over $150k, then NONE of your passive losses may be deducted currently. Instead, the losses are pushed forward to the next year until you can use the loss against income from the same activity or until you sell the property to release the loss.
Customer:

Would painting the interior of the condo be considered a repair? Would refinishing the kitchen cabinets (as opposed to replacing them) be considered a repair? On my husband's income, I was assuming a maximum profit sharing bonus.

Randalltax :

Interior paint and refinishing are generally repairs, not capital improvements. Replacing the cabinets with new work would be a capital expenditure.

Randalltax :

If your AGI, not including the rental loss is between $100K-150K, you are subject to the phaseout rules, meaning only a portion of your loss may be deductible. The closer you are to the $150K figure, then the less is allowed. Even if your income was below $100K, the maximum allowable loss to you would be $25K in one calendar year. There is a $25K limit on losses unless you are a bona fide real estate professional.

R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2882
Experience: Over 20 Years experience
R. Klein, EA and 2 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.