RE Broker to prepare new rental unit tax deductions question

Forum|Forum|1 year ago
February 18, 2025
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I can't seem to get a straight answer about this issue: I am a Real Estate broker and own a condo. In 2023 I conducted repairs and improvements to the property so that I could put it on the market for the *first time* in 2024. I claimed no deductions in 2023 for this work. Now I'm hearing different stories about if I can or cannot take any deductions, capital improvements or any tax benefits in year *2024* for those repairs and improvements done in 2023. Some people say that since I work in the business as a broker I can take some or all of the enhancments to the property executed in 2023 as depreciation going forward or write them ALL off as capital expenses over 27.5 years. Others say no I can't do that. Any sage advice much appreciated. Thank you.

Not A Product Question

MinhT1

A property becomes a rental property only from the day it is available for rent on the rental market. Before that date, no rental expenses or depreciation can be claimed.

The improvements you made to prepare your property for rental can 't be claimed as rental expenses. But they can be added to the cost basis of your property, to be used for depreciation from the day it is put on the rental market.

Please read this TurboTax article for more information.

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leptserkhanAuthor

Please confirm when you say "added to the cost basis of the property" that means the market value of the property when I inherited it? Yes, this is an inheriance.

I was under the impression that preping and prepairing a property for rent that all of those expenses are somehow tax deductble in the year the work was done, but if the work occured over two years (which it was) then only those repairs and such are deductable for that year.

Can transportation costs, food, lodging, etc. be partialy or wholey deducted as well?

Thank you.

AnnetteB6

The market value of the property at the time you inherited it does come into play (that is your basis before property improvements were made), but so does the fair market value of the property on the day that it is placed into service as a rental property. The basis of the property for depreciation is the lower of those two values. Then, you can add the cost of the improvements to that basis.

The cost of the improvements cannot be deducted in the year that the work was done because the property was not considered to be a rental property until it was being advertised and made available for rent. Until it is placed into service as a rental, any expenses you incurred in getting the property ready to be rented are personal expenses and are not deductible. This includes transportation, food, and lodging. These kinds of expenses are only deductible if you incur them after the property has been placed into service as a rental and the expenses are related to your maintaining or repairing the property at that time.

Improvements made to the property before it is a rental are allowed to be added to the basis for depreciation because they become a component of the property itself. This would be true even if you never actually rented the property, but instead you sold it. The costs of the improvements would be added to the basis in that case as well.

To learn more about the basis for depreciation for the rental property, take a look at this information from IRS Publication 527.

@leptserkhan

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