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Investors & landlords
The capital improvement costs will be added to the basis of the rental unit when you report your rental income and expenses on your 2021 tax return. Nothing will be reported on your 2020 return with regard to the improvements or the rental property unless it was advertised and available for rent in 2020, but just not rented until 2021.
When you enter the information into your tax return for the rental property, consider reporting the rental apartment as its own entity instead of a 'portion of your home'. This will set up your tax return better for the future possibility of renting the second apartment (where you currently live) later.
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May 11, 2021
8:21 AM