Convert Residential Rental to Commercial with renovation

[ccbdiver]

I purchased a Residential rental in 2019, but it was in such poor condition I was not able to rent it during that year. It had a few expenses and I depreciated the building accordingly as a residential rental with no rent on 2019 Taxes.

I then decided to renovate the building into a commercial space. At the end of 2020 the renovation had not been completed.

Do I total up 2020 expenses as a capital improvement and add as an asset for depreciation?

Does the whole building need to be moved to commercial before new appreciation is added?

What date would be used for 'date acquired' on online form for renovation?

Do you need to wait till renovation is complete to depreciate it?

Thank you.

[ColeenD3]

First, you can't take any expense for a rental, including depreciation, until it is placed in service and available to rent. You need to amend 2019 and remove it.

Since it was not really ever a rental property, you do not have to convert. Once the nonresidential rental is placed in service, you can begin to take expenses. Your basis will be cost plus improvements.

[ccbdiver]

It was advertised as a rental after it was purchased (and there were tenets that moved out at time of purchase so it was habitable). Therefore is was available to be rented at that time, but I was unable to rent it at the desired rental rate (hence the decision to renovate).

From your answer I take that it should be moved to the commercial schedule and depreciation would start after the renovation is complete and it is in service. Correct?

Since the work was not complete in 2020, no expenses or depreciation should be claimed from the time renovations started till they are completed, Correct?

[ColeenD3]

You said, "I purchased a Residential rental in 2019, but it was in such poor condition I was not able to rent it during that year."

You begin when you place it in service. If you finish renovations on 6/1/2021 and begin to advertise for a tenant on 6/2/2021, then 6/2 is the date you begin.