[GNC] House renovation Expense or Asset?

[John Ralls]

> On May 11, 2018, at 10:21 AM, Tony Vanson <tonyvans70 at gmail.com> wrote:
> 
> Hopefully I've posted this query in the right area - if not, please accept
> my apologies.
> 
> My quandary is that, my recently purchased house, has an uncompleted
> extension. I have now contracted to have this extension finished. I am
> unsure how to record the expenses incurred in GNUcash.
> I assume that when all the construction is finished, the total cost could
> be assumed to be treated as an asset increase to the value of the house?
> In this instance, would all additional expenses occurring during
> construction be treated as a debit on my bank account but a credit as an
> asset increase?
> I would really appreciate some advice from any of the many knowledgeable
> users on this forum.
> Cheers

The following is free advice from a non-professional and you get what you pay for. If the value is large then it's worth the cost to get professional advice.

As a general rule improvements like an addition are treated as an increase in asset value ("capitalized"), while maintenance like repainting or replacing a fixture with a like one is expensed. While in general the distinction doesn't matter for personal property, if this house is or will be your primary residence and it's in the US you get a tax benefit in reduced capital gains tax when you sell if you add the improvement cost to your basis. On the other hand if the house is to be a rental then it's a business situation and you want to expense as much as possible for an immediate deduction (and naturally the tax folks have rules to stop you from doing that) rather than to adjust the basis and depreciate it.

Regards,
John Ralls