Rental #1 ... all of the renovations are added to the cost basis of the home and are entered as an asset to be depreciated when the property is on the market to be rented ... so you have nothing to report on the 2017 return except RE taxes and mortgage interest since it was either your primary home or a second home.
Rental #2 ... You bought an active rental so it is reported as such on both tax returns ... on the 2017 the total cost of purchase is the basis for the rental property for depreciation. Then the improvements made to the third floor are combined when finished and also entered as an asset to be depreciated in the tax year they are completed and a renter can move in.
Sorry, but at no time is your labor deductible ... it is what they call Sweat Equity.
However ... if you start your own separate business then you can pay that business for the work (add it to the cost of the improvements on the Sch E) and you will report that income on a Sch C where you will pay federal/state and SE taxes on it. If you do set it up as a separate business then the tools can be deducted from that Sch C income.
As for the use of the tools on the rentals ... since they have a life time of 7 years you really cannot expense them on the Sch E but you could enter them as assets and partially depreciate them on the Sch E then move them to the Sch C if you open your own business ( you could also incorporate and file an S-corp). I highly recommend you seek local professional advice before making any kind of moves at this time as there are too many nuances and discussing them in this forum will not work well.
