Where Form 4797 Reduced 2023-2024

Then I purchased a rental. The cost of the rental was $38,000, and I spent an additional $18,000 on repairs. Now, when I sell the rental, I am confused about the cost basis. Should it be $38,000, or should it include the cost of repairs as well? This is where our opinions differ. Personally, I believe that if you buy a house for a low price but can increase its value with improvements, you should capitalize on those expenses. Jeff, on the other hand, argues that there are two types of work done on a house: repairs and renovations. The $18,000 spent on the rental does not sound like a repair to him, but rather a renovation. In that case, it should be added to the cost basis. Repairs, such as fixing a driveway or a door, would not increase the cost basis and can be written off immediately. There is a safe harbor rule stating that invoices under $2,500 can be written off without question. However, for higher amounts, audited financial statements may be required. Nevertheless, I prefer to stick to the $2,500 threshold. So, if you have someone working on your house, ensure that their invoice is less than $2,500, treat it as a repair, and write it off. Let's also address the question about cost segregation. In a typical scenario, a house worth $56,000 would require a 27.5-year write-off period for renovations. However, cost segregation allows for immediate write-offs of specific components, such as carpeting, ceiling fans, and light switches. This can result in an extra 20% to 30% write-off in the first year. Alternatively, you can use the safe harbor method to achieve the same outcome by ensuring the invoice is kept under $2,500. Many people don't realize that cost segregation not only decreases income significantly...