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After health care reform, how about Internal Revenue Service reform?
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Since the White House and Congress seem willing to take on tough issues, perhaps Internal Revenue Service reform should be considered as their next project. Having to spend all evening answering one simple real estate question--whether initial repairs on an investment property are deductible--seemed like a terrible waste of time. Taxation isn't the problem, although we the people are a little farther removed from taxation with representation than is comfortable. The problem is that there are huge numbers of extremely complex federal tax laws that even IRS employees can't interpret correctly. And, while we're talking about reform... think of the environmental impact of the forms, publications, and printouts that are still produced even though many of us e-file. If you want to see a tiny example of this, go to your local public library in January and look at the stacks of paper that they are distributing for the IRS.
The K.I.S.S. philosophy would seem to apply: Keep It Simple, Stupid. A person shouldn't need a Ph.D. in economics to understand how, when, where, why and what amount we are taxed. In a way, we have taxation without representation in this country. Many of our legislators are extremely intelligent people, but it is likely that most of them don't have a Ph.D. in economics.
As a sole proprietor involved in one or two related business activities, it was possible to manage and file taxes without professional help. As an LLC involved in several unrelated business activities, it's becoming impossible. The novice real estate investor already struggles with finding reputable contractors, dealing with local ordinances, financing renovations, and selecting reliable tenants. Many investors are taking abandoned properties that are uninhabitable and turning them into decent, liveable spaces. The last thing that should be done is to make them crazy trying to answer a simple tax question.
By the way, I believe that the answer to my question is: Once property is put in service, depreciation is used to allow owners a tax advantage of initial renovations, which the IRS considers as "improvements." "Repairs" are done after property is put in service, are deductible the same year as they are done, and aren't the same as improvements. Whew--please don't quote this. For those of you who aren't novices, this makes perfect sense. However, on this end, much more reading and a trip to a tax professional is required.
