Capital improvement project spanning 2 tax years

Forum|Forum|3 years ago
April 5, 2023
1 reply
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I have a large capital improvement to a multi-unit apartment building. Costs were incurred in 2022 (engineering, permits, etc.), but the project won’t be completed until 2023. I plan to depreciated this asset once the project is complete and it can be placed in service. How do I handle the 2022 costs depreciation-wise as they are part of the entire project, but incurred in the year prior to the asset being put into service?

Thanks,

Andrew

TurboTax Business Windows

PatriciaV

Employee

Yes, the costs you incurred in 2022 will add to the basis of the improvements once they are placed in service. For now, keep track of those costs for the future. No entry is made for your 2022 tax return.

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Amiller1Author

Employee

Thanks. How should this be addressed on the balance sheet?

PatriciaV

Employee

The costs for an unfinished capital project are considered "Construction in Progress" and are listed separately from capitalized (depreciated) assets. The accounting entry would be CIP (debit) and Cash (credit), in case you can use that info.

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