House sold by LLC

[Super Mom]

I have a client that is an LLC in the business of rental. In 2016 they did a bunch of work on the house in anticipation of selling the house, which they did in 2016. Normally, I would expense or capitalize the AC, paint, fixtures, small purchases of hardware, etc... on the 1065 for 2016 costs. Is it proper in this case to just add that 2016 costs to the basis to get the gross profit percentage for the installments? OR should I expense on 1065 except for capital assets?

[kathyc2]

I have a client that is an LLC in the business of rental. In 2016 they did a bunch of work on the house in anticipation of selling the house, which they did in 2016. Normally, I would expense or capitalize the AC, paint, fixtures, small purchases of hardware, etc... on the 1065 for 2016 costs. Is it proper in this case to just add that 2016 costs to the basis to get the gross profit percentage for the installments? OR should I expense on 1065 except for capital assets?

Expensing repairs would provide a better tax benefit than capitalizing. You need to ask some more questions to see if that would be the correct treatment though. Were the repairs to put things in operating order or improving? Was the work done with the option of putting it back on the rental market or strictly to sell?

[ttbtaxes]

It would seem to me to be intent driven. For example, if the house was listed for sale and, during the listing period, improvements were made and expenses incurred, I would capitalize them. If thee never was an intent to return the property to rental status, I would capitalize them.

[ATSMAN]

I ran into this quite a bit when house flipping was king! I agree, if the intention was a buy low, fix it up and sell for profit, I would add all repairs to basis to calculate CG. No sch E.

The departure would be when the house is actually rented out and rent received. Often times they will post a rental sign but it is never actually rented rather it is a back stop.