HEY HOW IS EVERYONE DOING WELL IM HERE LATE AT NIGHT TRYING TO FINE TUNE MY PAPER WORK FOR TAX PURPOSES ITS MY FIRST YEAR AND ITS A LITTLE CONFUSING WELL I BOUGHT THREE HOUSES THIS YEAR AND TWO OF THEM ARE RENTING RIGHT NOW THE THIRD HOUSE IS STILL HAS A FEW MONTHS TO GO WELL MY QUESTION IS CAN I DEDUCT THE MONEY I PUT INTO THE HOUSE EVEN THOUGH ITS STILL NOT RENTING WHAT ABOUT THE COST OF THE HOUSE OR THE INSURANCE PROPERTY TAXES CAN I DEDUCT THEM THIS YEAR OR DO I HAVE TO WAIT TILL NEXT YEAR ONES THE HOUSE IS RENTING WELL ANY HELP WOULD BE GREATLY APPRECIATED THANK YOU
If you really want someone to answer to your question, you can’t shout at us. Turn off the caps lock and use punctuation.
You can never deduct the cost of the property, or the cost of rehab needed to make the property ready for rental use.
Once the property has been placed in service as a rental, deductible expenses for a vacant property are those ordinary and necessary costs for managing, preserving, and maintaining the property. However, you cannot deduct the loss of rental income for the period the property is vacant.
Consult IRS Pulbication 527 for more detailed information.
Dave T - the costs to make “capital improvements” - these cannot be deducted - is that because the IRS considers this expense to be apart of the real estate, which is depreciated over time - correct? plus when sold, this is when these costs can be claimed…but how does time effect this?
also - if Mel takes 1000 and uses it in a property, for like a toilet, etc. - this will NOT be deducted - it will just show as cash that went into a property.
but if Mel spends a 1000 to pay a maintenance fee - that’s deductible. :biggrin
the problem is at the time of the improvements, repair or whatever, it was not a rental. therefore, those expenses/improvements could potentially be added to the cost basis (depends on the exact nature) becuase at the time they were done it would be considered an “investment property”
if you have it in service, then those expense mostly likely can be taken as repairs, etc. on Sch E of that year. I’ve done some modest rehabs (several thousand) and taken it as an expense in that year under advice from my tax professional.
That’s my expereince; its these kind of shades of grey issues where professional advice is very helpful.
- the costs to make "capital improvements" - these cannot be deducted - is that because the IRS considers this expense to be apart of the real estate, which is depreciated over time - correct? plus when sold, this is when these costs can be claimed...but how does time effect this?
A capital improvement either increases the value of the property or increases the useful life. A room addition is a capital improvement (increases value), and, so is putting on a new roof (increases useful life). Regardless of whether the property is in service as a rental or not, a capital improvement is an adjustment to basis. The cost of the improvement is recovered through depreciation while the property is held.
If the property is sold before the asset is fully depreciated, then the remaining asset value is still reflected in the adjusted cost basis for the property and therefore no capital gain tax will be paid on that value.