A Tax Tip for Home Renovations

What kind of tax issues can there be with interior design projects?  You might be surprised.  But let me start with something very common but too often overlooked.

Say you have an aged condominium unit in Breckenridge that you have decided to renovate from the ground up.  Also, this property is intended to be a rental property held for investment purposes.  The renovation will cost $60,000 inclusive of structural improvements and furnishings.

There is more than one reason Design One Interiors provides our client with a line by line itemization of the costs of their renovation project.  The reason I would like to discuss here, however, is how it can be used for computing and maximizing the depreciation allowance when filing your tax returns and thereby, in most cases, minimizing your tax liability.

Don’t simply depreciate the aggregate $60,000 costs as “improvements”.  Residential real properties (in this case your structural improvements) are depreciated over a 27.5 year period whereas furnishings and other tangible items such as furniture, accessories, window treatments, carpeting, etc., are depreciated over a five year period. Without even getting into aspects such as “accelerated” or “bonus” depreciation, most taxpayers are going to find it to their advantage to segregate these renovation costs by this criteria in order to accelerate the cost recovery of their renovation through their income tax savings.