Other Tax Questions
Questions and comments on other topics covered in Fairmark.com, such as UTMA accounts, and any tax questions that don't fit our other categories.
CAPEX for a rental property
Posted by: miamicuse, April 16, 2017 04:44PM
For rental properties I know you can depreciate things like a new roof, new washing machines etc...although different things have different schedule of depreciation.

I have one item that I don't know if it's an item one can depreciate.

Property purchased in 2016. Inside units are in good shape and ready to occupy.

Outside is a total mess. Unpermitted driveway, unpermitted fence, unpermitted backyard concrete deck, unpermitted gazebo, tiki hut etc...The city has an active fine and lien, with a daily fine of $200 per day - since 2008. Owner never legalized and let the fine build up, then stopped paying mortgage and eventually the bank foreclosed. I bought the property from the bank.

Property value if no liens/violations - around 300K
Property purchase price - 150K assuming all violations and liens
Land value - 75K

So in 2016 I began to work with the city to get it all legalized.

The construction cost to restore property to legal status, including demolition of a lot of the exterior structures, new fences, new driveway, new landscape, new walkway etc etc etc...was about 75K.

I had to pay a city fine to have the liens released, the fine was about 40K.

Legal fees about 5K to an attorney to negotiate with city officials to have the fines reduced (it was a lot more than 40K originally).

So a quick recap:

Property value now - 300k from an appraiser
Land value - 75k
Purchased price in 2016 - 150K
Construction cost to legalized - 75K
City fines - 40K
Legal fees - 5K

Is it possible to include any of the costs as CAPEX for depreciation?

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