Question

If a repair is done to resell the property, is it deductible as an operating expense?

a) Yes
b) No
c) Partially deductible
d) Only if it increases property value

Answer 1

Yes, repairs done to resell a property are generally deductible as an operating expense because they are considered necessary to maintain the property in a saleable condition. It is crucial to distinguish between repairs and improvements, as the latter must be capitalized and depreciated.

Step-by-step explanation:

When it comes to determining whether a repair for reselling a property is deductible as an operating expense, the correct answer is a) Yes. According to tax laws, the cost of repairing a property to make it suitable for sale is generally considered a deductible expense because it is an ordinary and necessary expense incurred to keep the property in a saleable condition. These expenses can be deducted in the year they are incurred.

However, it's important to differentiate between repairs and improvements. Repairs maintain the property in good condition without adding significant value, while improvements are likely to increase the property's value and usually must be capitalized and depreciated over time, not deducted in the year they are made.