How do i report expenses associated with a rental property under renovation

[navvadarbniy]

we renovated an apt. in 2017 and need to know how to report construction fees, architect fees and other expenses as well as setting up depreciation.

[AmandaR1]

A property that's held as a rental during improvements or while being sold, can still be reported as a rental on schedule E. This allows you to carry forward any losses and deduct certain expenses with maintaining the property.

The IRS specifically allows this type of reporting. From Pub 527 for rental properties:

Vacant rental property.

If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. However, you can’t deduct any loss of rental income for the period the property is vacant.

See this here: https://www.irs.gov/publications/p527#en_US_2017_publink1000219000

Under the property profile, be sure to list your property as a rental during the time of renovations/vacancy. For your renovations, if this is the first time you are renting the property, then you add them into your cost basis for Depreciation. 

If you've rented the property in the past, you'll add the total renovations as an asset under Improvements (such as 'remodel'). You add the home and the remodel under the Assets/Depreciation section for your rental.   

To review your rental property entries:

• Head into Rental and Royalty Income and answer the basic rental questions >>> 
• select to Edit the applicable property >>> 
• You'll come to XYZ Rental Property Summary >>> 
• Select Edit/Update next to Property Profile >>> to edit that property is considered a rental
• Select Edit/Update next to Assets/Depreciation >>> to add assets for depreciation expense deductions

[A-A-ron-14]

@AmandaR1 . Thanks for this explanation. 

Does this apply if the property is new to us and has never been rented before? We purchased a property in November 2021, immediately spent about 4 months fixing it up, during which time it was vacant, then rented it in starting in March 2022.  I am wondering if I should set up the Schedule E for this property in my 2021 filing or wait until 2022? Thank you!

[Critter-3]

The Sch E is used once the property is available for rent ... so 2022 in your situation.   The cost to improve the property is added to the cost basis for depreciation purposes. 

[A-A-ron-14]

Thank you Critter.