You can include the improvement expense when it is placed in service, A property is considered placed in service when it is “ready and available for rent.” In your case if it was available in 2023. You would include the improvements on you 2023 tax return.
Yes, the city permit expenses should be added into the Cost basis.
Yes, you should include Please see Publication 527 Adjusted Basis.
"Additions or improvements.
Add to the basis of your property the amount an addition or improvement actually costs you, including any amount you borrowed to make the addition or improvement. This includes all direct costs, such as material and labor, but doesn’t include your own labor. It also includes all expenses related to the addition or improvement."
In general, yes, please see should count all expenses related to this project as capital improvement in the tax year 2023. Publication 527 Placed in Service.
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