Owner Occupied Duplex - Posted by JD (WI)

import · November 20, 2006, 9:21pm

Posted by Frank Chin on November 21, 2006 at 20:57:03:

Dave:

That’s even better. I’ll have to update my CPA on it.

Little wonder he was annoyed at my depreciating $200.00 appliances over 5 years at $40.00/year. He thought I was being ridiculous.

I’m surprised at the IRS position on a paint job though. Always thought it’s expensed, very much like a cleaning and maintenance expense. That’s a new one on me.

Frank Chin

import · November 20, 2006, 9:21pm

Owner Occupied Duplex - Posted by JD (WI)

Posted by JD (WI) on November 20, 2006 at 22:21:04:

If an owner lives in a duplex, what expenses can he write off? I believe the following to be true:

100% of expenses related to only the rental unit (i.e. paint, improvements, new countertops, cabinets, etc).

50% of expenses related to both units (i.e. landscaping, painting exterior, etc)

0% of expenses related only to owner occupied unit (i.e. paint, updates, etc.

Is this correct? Any other advice?

import · November 21, 2006, 3:45am

Re: Owner Occupied Duplex - Posted by Frank Chin

Posted by Frank Chin on November 21, 2006 at 04:45:41:

JD:

You pretty much got it covered. Just to add:

You’ll get to depreciate the rental unit.
Mortgage interest goes on two different schedules, i.e. schedule E, and the other for owner interest.
Capital gains follow rules of owner occupant for the owner unit, i.e. no taxes if you live there 2 out of 5 years.

For bookkeeping purposes, it’s carried as two properties, one owner occupied, one rental, and even capital expenses such as a new roof, furnace etc are so allocated.

Frank Chin

import · November 21, 2006, 7:09am

Re: Owner Occupied Duplex - Posted by speednxs

Posted by speednxs on November 21, 2006 at 08:09:34:

JD wants to be a bit careful about “writing off 100% of expenses related to the rental”. I have an accountant for this stuff, but this is my understanding. Repairs and improvements have to be kept separate. A repair may be deductible immediately. An improvement may have to be capitalized and depreciated over a number of years. Due to the time value of money, this may be much less advantageous than an immediate deduction. Frank very carefully used the phrase “capital expense”. IRS publication 527 has a whole section on repairs and improvements.

Good Luck

import · November 21, 2006, 4:01pm

Re: Owner Occupied Duplex - Posted by Frank Chin

Posted by Frank Chin on November 21, 2006 at 17:01:33:

speednxs:

You’re right, and there was a discussion on this board quite a while ago on the line between repairs vs capitialized items.

I’ve been told by my CPA that the IRS mostly regard anything under $400.00 as a deductable expense. At one time, I depreciated appliances such as refigerators and hot water tanks. So we agreed on a guideline that anything under $600.00 is expensed, which would cover dishwashers, washers, dryers, AC’s, refigerators, and even hot water tanks.

He took over from the time when I didn’t use a CPA, did it myself, and he was annoyed at the itsy bitsy appliances I was depreciating. I never actually heard about the $400.00 limit, but apparently it’s a widely used rule of thumb.

Frank Chin

import · November 21, 2006, 6:00pm

Re: Owner Occupied Duplex - Posted by David Krulac

Posted by David Krulac on November 21, 2006 at 19:00:13:

during an IRS audit, the agent indicated that his threshold was $1,000. Everything under could be expensed, everything over must be capitalized.

I said that painting, which could be over $1,000 should be expensed since a tenant could move out in less than a year and you would have to repaint again. I lost that argument.