How do I account for a rental property purchased but not rented during the tax year due to renovations?

Forum|Forum|3 years ago
February 23, 2023
3 replies
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I bought a property to use as a short-term rental in 2022 and undertook major renovations. Due to the extent of the renovations, it was not rented at all in 2022. When I try to enter the property to account for mortgage, renovation expenses, etc, TurboTax tells me I cannot include it because it was not rented.

TurboTax Self Employed Online

leeloo

The program is correct. It is not rental property until it is placed in service and available to rent. Until that time, it is still personal property. You can add your renovation costs to the basis of the building when your depreciate it.

Cynthiad66

I agree with Leeloo above. However, if you have mortgage interest and property taxes paid during the year you can deduct hem on Schedule A if you itemize your deductions. The property is considered personal property until it is available for rent.

Your renovation costs will be added to the cost of the property and depreciated.

Renting Residential and Vacation properties

@bailaelena

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Carl11_2

Employee

Since the property was not placed in service in 2022, you have absolutely nothing to report on SCH E concerning this property. For tax year 2022 it's treated as a 2nd home. Your only deductions are mortgage interest and property taxes paid in 2022 as a SCH A itemized deduction, and that's it.

All of your property improvements will be accounted for in the tax year the property is placed in service. So keep all of your closing paperwork on the purchase, as well as receipts on the property improvements, as you will need them when you do your 2023 tax return next year, assuming you place the property "in service" as residential rental real estate in 2023.