structure for rental maintenance?

[Possi]

My client has multiple rental properties. He is military, and his rentals are not Sch C, but are Sch E income. Average. 

He plans to build a workshop at his home....  "Since I will use this to work on projects and do repair work for the rentals can I write it off on next year's taxes?"

My knee jerk reaction is "no, and get out of my office, I'm busy...I think Rita has a hug for you..."

BUT, is there any reality to this? Is he able to deduct this in any way?  

What if it really was exclusive use for maintaining the rentals? (I know it won't be, but just for the sake of discussion.)

 

[Lee B]

I would entertain the idea, but only if it was a freestanding structure and it was not mixed use.

Also, his rental activity would have to qualify as being a trade or business for QBI.

[jklcpa]

I'm skeptical. My knee jerk reaction is that this person wants a he-shed or man cave that he is trying to deduct.

Questions in my mind, not necessarily for the client are -

• Does he do his own repairs now or have the skills to do so in future?
• Does he use a mgmt company that arranges for repairs, or do that himself?
• How does this work with him in the military, and who does repairs if/when he is deployed?
• Lastly, what type of repairs could he need a workshop for that he could fabricate something offsite in the workshop? Wouldn't most of that type of work be done on site?
• What exactly will happen in this workshop?
• How/where would you put this on Sch E that isn't a trade or business, and with multiple rentals which property would you assign this to?  I'm assuming a depreciable asset here.

[Lee B]

Yes, there are multiple hurdles this taxpayer would have to clear, but it is possible with the right facts and circumstances.

[Possi]

He does have the skills to do all the maintenance, and in fact does it all. He is very active in maintaining the properties with no property manager involved. If something happens while he is deployed, he hires out, but that is rare. These are high end rentals, not junk.

I can't say what exactly happens in the workshop. He's one hottie, I know that. 

I don't know if it would be a depreciable asset or used more in line with a home office, simple sq footage use. I would add it to any one of the properties in that way. Under expenses, home office, whatever the measurements are, and then the total using $5 sq ft with a max 300 or $1500. 

That way, there's a cap and no depreciation. 

Does this make sense? 

[Lee B]

Does he qualify as a Trade or Business for QBI purposes? If not, stop.

Home office and a Maintenance Shop are two separate issues.

If he does have an exclusive use Home Office then I like the optional $5 per square foot.

As far as I am concerned the Maintenance Shop would have to be a freestanding structure used exclusively for his rental business.

If it was then I would set up a separate column on Schedule E called "Indirect Expenses"  category 8 "Other"

[Possi]

6 hours ago, cbslee said:

Does he qualify as a Trade or Business for QBI purposes? If not, stop.

Home office and a Maintenance Shop are two separate issues.

If he does have an exclusive use Home Office then I like the optional $5 per square foot.

As far as I am concerned the Maintenance Shop would have to be a freestanding structure used exclusively for his rental business.

If it was then I would set up a separate column on Schedule E called "Indirect Expenses"  category 8 "Other"

Thank you! 

It would be a free standing structure. I would bet it won't be exclusive use, but I'll ask. He will be honest with me. He's not trying to cheat, just asking. So, I'll get the truth about the usage and go from there. 

[NECPA in NEBRASKA]

7 hours ago, Possi said:

I can't say what exactly happens in the workshop. He's one hottie, I know that. 

The best thing that I've read all day.

[DANRVAN]

52 minutes ago, Possi said:

I would bet it won't be exclusive use, but I'll ask. He will be honest with me.

Tell him if it is mix use he will need a to keep a log of time spent on rental projects vs personal use as he would other listed property, like a car.  Then you depreciate based on percent used for the rental.  So probably not much in yearly tax savings.

Also point out no section 121 if he ever decides to sell.

Since most rental repairs are done on site, I can't imagine him doing much related to the rental in a workshop.

[Gail in Virginia]

9 hours ago, DANRVAN said:

Since most rental repairs are done on site, I can't imagine him doing much related to the rental in a workshop.

I am wondering if instead of planning to do rental repairs in the workshop, his thinking is that he stores all of the tools that he uses in the rental repairs in this building and therefore the use is for the rental properties. 

[Lee B]

47 minutes ago, Gail in Virginia said:

I am wondering if instead of planning to do rental repairs in the workshop, his thinking is that he stores all of the tools that he uses in the rental repairs in this building and therefore the use is for the rental properties. 

I given this some more thought and there would probably also be maintenance supplies, replacement fixtures bought on sale, things like doors needing to be refinished

and other projects needing to be refurbished.