Carl, thanks for the extensive answers. A couple of points to make and I will reiterate my understanding of what you are recommending as it relates to the depreciation (and now other carrying costs):
- This property has always been and will continue to be a rental since the date of original purchase. No confusion here. Not sure if there is a reason you kept referring to conversion for personal use. Is there some sort of requirement I do so during the renovation?
- This was not some small renovation - major gut and remodel costing $300K+. Place was not habitable hence not available for rent during the renovation.
- For the original depreciation, I was referring to the depreciation of the original purchase price allocated towards improvements, NOT to the cost of improvements made by prior owners, so I think we are on the same page here.
- Fully aware that the remodeling costs cannot be depreciated until the remodel is complete and the property is being rented again.
Just to reiterate my understanding on two points:
1. You are saying that for tax purposes "all utility costs (electric, gas, etc) and maintenance cost incurred while you were renovating can be deducted as a rental expense". This runs counter to everything else I have read. It was my understanding that carrying costs during renovation have to be capitalized, since there is no rental income incurred that they can be offset against. What IRS ruling are you basing your assessment off of? It sounds like you are applying the same logic to depreciation of the original purchase price allocated to improvements. To clarify, this means that in 2017 I will have 4 months of rental operation, to which I will apply 12 months of interest payments, property taxes, utility bills, insurance payments and depreciation. Is that right?!?
2. For my edification, how would the analysis change if the property was not rented for even a single day during the taxable year?
