Qualifying Expenses for Rehabilitation Tax Credit

Recently I was invited to a Better Housing Coalition seminar about Renovation Loans and tax credits.  Many buyers looking for a fixer-upper don’t take advantage of the great resources available to them! There is a plethora of information that goes along with these types of loans, so I’ll be doing a mini-series of valuable tips and pointers for those considering buying a Rehabilitation Loan or applying for Tax Credits.

First and foremost, when you’re shopping for your home, there are certain renovations that qualify and those that don’t.  This will help you determine what is a good or bad investment as far as where your time and money will be spent.

With Tax Season upon us, Rehabilitation Tax Credits come to mind first.  Here are some Qualifying Rehabilitation Expenses:

• walls
• partitions
• floors
• ceilings
• paneling
• tiling
• windows 
• doors
• central air system
• heating system
• plumbing
• plumbing fixtures
• electrical wiring
• security systems
• light fixtures
• chimneys
• stairs
• escalators
• elevators
• sprinkler systems
• fire escapes
• custom kitchen cabinets
• other components related to the operation or maintenance of the building

Here are some examples of renovations that do NOT qualify for the Rehabilitation Tax Credit:

• acquisition costs
• appliances
• stock cabinets
• carpeting (if tacked in place and not glued)
• decks (not part of original building)
• demolition costs
• enlargement costs (if increase in total volume)
• fencing
• feasibility studies
• furniture
• landscaping
• leasing expenses
• outdoor lighting remote from the building
• parking lots and paving
• planters
• porches and porticos (not part of original bldg)
• retaining walls
• sidewalks
• signage
• storm sewer construction costs
• window treatment
• new building construction

When looking around for your next investment, remember these qualifying costs that will save you money come tax time! 

Pre-Inspection Home Dissection

    When I first became a real estate agent, I would write offers left and right— hungry to get my clients the house they wanted.  But with experience I learned how to work smarter, not harder.  The first year I was an agent I would say that I wrote offers on about 8 to 10 houses that got released because of the inspection findings.  It was that year I put together a guide on things to look for when walking through a home.  There are always going to be issues you can’t catch on your own, perhaps under the house, that only an inspector can find.  But before writing a contract, before getting an inspection, before wasting anyone’s time and money, I’ll share a few things to look for starting with asbestos siding.

     It is mostly found in older homes built between the 40s and 60s.  It is very flat siding with vertical ripples running down to wavy edges.  If you see this style of siding it is 100 percent of the time asbestos.  When looking for asbestos in an older home, it’s important to walk all the way around the house.  Often it is covered up with vinyl siding except for say, a screened-in porch or an addition. 

     Before you even make the trip out to see the potential house, check the MLA sheet.  Most of the time it will tell you if it’s asbestos siding, or will at least denote “other."  If you know you qualify for an FHA loan, unless you want to get a very expensive renovation loan, it’s usually best to move on to the next house.  There are ways to remediate the problem if the siding is perfectly intact.   The asbestos siding can be sealed and then covered with vinyl to properly protect it. If any of the siding is broken, it can be very expensive to remove it due to health and environmental implications.

     Another thing to consider is resale value.  If you have a conventional loan and bypass all the requirements of an FHA, when you go to resell, asbestos siding can become an issue.  Even if it’s not a concern of yours at the present moment, it can be one for a potential buyer.

     If you educate yourself on the basics, you can do your own pre-inspection before spending hundreds of dollars to have someone tell you what’s in plain sight.  Next week, I’ll share a few more tips!