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Accounting for repairs and expenses on a rental property is a topic that creates a lot of confusion. However, the IRS has set forth regulations that are very clear.
On today’s show, I’m sharing a simple mnemonic device you can use to determine whether or not an expense can be written off immediately, or capitalized over time. I’ll give specific examples, quote exact wording from the tax code, and share why I love making repairs on my rentals! Come along for episode 303 of Investing in Real Estate!
More About This Show
The BRA Method refers to Better, Restore and Adapt. Anything that falls under one of these categories counts as a capital expense. These are genuine improvements from when the property was acquired—an improvement that increases the value of the property.
B – Better - This one is the most obvious. If you’re bettering the property, you’re making an improvement. This means adding something to the property that improves the quality and adds value.
R – Restore – This instance refers to purchasing a historic home, and restoring it to working condition. Restoration means you’ve replaced substantial components of a property in order to bring it back to life.
A – Adapt – In my experience, adapting a property is less common, but it does happen from time to time. Adapting a property means making changes that allow the home to serve a new purpose.
On today’s show, I’ll speak extensively about the BRA Method, including specific examples. I’ll talk about how the BRA Method differs from routine maintenance, and how to account for each of these expenses on your taxes. It’s all here on episode 303 of Investing in Real Estate!
If you’re ready to begin building a passive income through rental real estate, book a FREE call with our team today. We’re ready to talk about your goals and want to help you learn more about earning legacy wealth for you and your family.
On this episode you'll learn:
- What is a cost segregation?
- How did I adapt a rental property?
- How is maintenance deducted?
- Is a new roof a repair or an expense?
- And much more!