Purchased new construction home investment property Q4 2019....

Forum|Forum|6 years ago
March 16, 2020
15 replies
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Purchased new construction home as investment property Q4 2019. Holidays, additional work needed, time of year delayed renting. Home is now rented (in 2020,) yet purchase was significant with many expenses and depreciation started in Q4 2019.

TT appears to fixing the new purchase to its in-service date of first rental, meaning we would not add this to our 2019 taxes at all, rather 2020 taxes next year. Are there no tax benefits to the purchase in 2019, the mortgage and expenses we have been floating since closing? We do have mortgage interest statements, for example.

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Added tidbit. We sold an investment property in Q4 2019 and purchased the new one through a 1031 Exchange.

RobertG

Level 12

You can't deduct rental expenses until the property is available for rent.

You can deduct Mortgage interest and property taxes on Schedule A, subject to the limitations.

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pixelrogue1Author

Level 5

I understand if it hasn't been rented, you can't deduct rental expenses.

On the investment property side, there were mortgage payments, association fees, taxes, purchase expenses etc. Are these just considered 'second' homes, and then have to 'convert' them to rentals for 2020 return?
The 1031 Exchange is also a 'like-in-kind,' rental-to-rental.. (?)

KarenM90

Level 11

Yes, you are correct. You can't deduct the rental expenses until it is available to rent.

You can deduct the property taxes on Schedule A for 2019.

You may be able to deduct the mortgage interest, prior to renting it out, if it qualifies as a 2nd home. Please see this link for more information: Mortgage Interest on 2nd home.

The majority of your expenses (except for the mortgage interest and taxes) will be added to the basis of the property. Please note that since this is a like-kind exchange, your basis isn't necessarily (probably isn't) the "purchase price of the property." Your Exchange Facilitator should be able to help you with your basis calculation if you don't know it. Generally, it will be calculated (before the addition of the pre-rental property expenses) as follows:

Start with the adjusted basis in the property you sold, including any mortgage.
Add the value of any other property you transfer in the exchange, the mortgage amount on your new property, the amount of cash you’re contributing to the new purchase, and any recognized gain on the sold property.
Subtract any money or property you received in the exchange, the amount of the mortgage on the sold property, and any recognized loss on any property sold in the exchange.

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