Quick question. I bought a property and did a bunch of improvements to it in 2017 and didn't start rental activities until 2018. For 2018 tax return, can I still add those improvements done in 2017 to my purchase cost to increase my cost basis so that I can take a higher depreciation in 2018 tax return ?

While I am not sure if it matters, the property I bought is a condo with 2 master suites that share living room, dining, and kitchen while each master suite has its own bath inside it. I occupy one suite and a renter occupies the other. Thanks.

Thanks for the information.  If property taxes and mortgage interest prior to being rentable are expense and not added to the basis, and entered as you say to TT under Deductions and Credits, do they get caught up in the Itemized Deductions / Standard Deduction issue?  And if so, and the Standard Deduction is larger, does that mean the rental property taxes and interest are lost?

I am in disagreement with @MargaretL 

When it comes to long term residential rental real estate, any and all expenses incurred before the property was "available for rent" are just flat out not deductible at all. (do not confuse this with property improvements.)  This especially includes those expenses incurred in preparing the property for rent, for that *very* *first* *time* and does not include expenses incurred during vacant periods between renters.

IRS Publication 527 has no allowance for expenses incurred before the property was available for rent. So for rental property there is no such thing as start-up expenses.

Now property improvements are a different story. A property improvement adds "real" value to the property, and it doesn't matter when that property improvement was done either. Property improvements done before the property was placed in service are entered in the Assets/Depreciation section and will have the same "in service" date as the property itself.

Property improvements completed after the property was converted to a rental are also entered in the assets/depreciation section. However, their in service date will be some date "after" the property was originally placed in service.

Long term residential rental real estate income is reported on SCH E with no exceptions. Yes, I said *NO* exceptions.

Carl

 

Sorry for the Q on such an old thread, but engineers like to know how stuff works...

 

Why can a business capitalize startup expenses (Pub 535, pg 4) and get tax relief for those costs, but residential rental property owners cannot?

 

If I was an active participant and could show 250 hrs of active management in a year would that change the situation do you know?

 

Thanks

Bob

1. Start-up expenses for a business are to create and investigate the business . See here. A rental property requires no investigation or research and would not qualify for start up expenses as defined by the IRS.

2. An active participant would change the amount of loss allowed from the $25,000 cap for passive participants but would not change the law regarding start up costs.

 

@nayborbob