Yes, improvements can be added to the Cost Basis; however, expenses like utilities, etc. can't be deducted as Expenses prior to 'date placed in service' and are not added to Cost Basis.
If the property was given to you or if you inherited it, or if you traded another property for the current property, there are special rules for determining your tax basis in your rental property.
- If you were given the property, for example, your basis is generally the same as the basis of the generous soul who gave it to you.
- If you inherited the property, your basis is generally the property's value on the day the previous owner died. (Special rules apply to property inherited from people who died in 2010.)
- Consult IRS Publication 551: Basis of Assets for more information about these situations.
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