I bought a couple of rentals a few towns over that I’m still fixing up. If I can’t rent them by Jan. 1, how do I expense insurance, taxes, mileage, etc. I’ve incurred in 2007? Can I expense them against zero income on each property’s Schedule E (and would that raise red flags at IRS?), or must I add them to property basis?
You can only claim expenses from the time the place is available for rent. Everything else is capitalized. Get that for rent sign out today. Just because it isn’t rented doesn’t mean it’s not available for rent.
Can I expense them against zero income on each property's Schedule E
short answer: yes.
would that raise red flags at IRS?
short answer: no.
available for rent
is interpreted very liberally. repairs are not capitalized. rehab to make the place livable is different: capitalize the hard costs and still expense mileage, insurance, taxes, utilities, etc.
unless you are significantly rehabbing the property, I’d put it all on the E and not lose any sleep over it.
run a few ads in the paper just to demonstrate some level of trying to rent.
In reality, late in the year, zero income on a new property “in-service” with some expenses is unlikely to raise any eyes at the IRS if you are talking about a smaller property.
Not a tax guy or CPA, just from my experience of buy lots of rentals.
Hire a good CPA or EA if you plan to do lots of rentals