IRS Pub 529 at https://www.irs.gov/pub/irs-pdf/p527.pdf page 4, bottom of first column.
Pre-rental expenses.You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent.
I can't find anything, anywhere that allows you to claim in any way, the cost of preparing the property for rent for that first time between the time you acquire the property and the time it is available for rent, , or between the time personal property is converted to rental use and the time it's available for rent. Could I have missed it? Of course. But I doubt it.
Also can't find anything that lets one add the cost of those items that are clearly repairs and/or maintenance expenses to the cost basis. However, if a repair is done as "a part of" a property improvement that's going to be capitalized anyway, then common sense says you include that repair as "a part of" the capitalized improvement.
Example:
I'm adding an counter-top island in the kitchen which will undoubtedly add value to the house. My cost of doing this (includes materials, supplies and labor) gets capitalized and depreciated of course. In the process of doing this build-out I accidently punch a hole in a kitchen wall I'm not working on for this project. Now I have to fix this hole with a small piece of sheet rock, a few screws, plaster, sheet rock tape and paint.
Technically, this is a repair. But I can include the cost of that repair in the cost of the property improvement since I fixed it as "a part of" doing the improvement. It'll more than likely cost less than $100 for me to fix this hole, and it's not like I have to itemize every teeny-tiny thing with the IRS.
Are you "getting my drift" now? 🙂
From what I see this is probably what is commonly referred to as a "grey area" and I recommend that folks stay out of the grey. Besides, when you have a depreciable cost basis of say, $120,000 or more, increasing that basis by one or two thousand won't even put a dent in your tax liability over the years, since rental property (with a mortgage) is 100% guaranteed to operate at a loss (on your taxes) every single year.
The killer will be when you sell the property and have to recapture the depreciation. It's taxable in the year of sale and gets included as a part of your AGI for that year - thus making it likely you'll get bumped into a higher tax bracket.
I myself prefer to keep my depreciation as low as I legally possibly can for that very reason.
