How to file rental property renovations before it is placed in service?

[Mia_4]

I bought a rental property in November and it needed about 45k in renovations. These include things that I personally would classify as repair, such as painting the units, but also larger ticket items that may fall under “improvement” such as replacing all the windows and building a new deck and replacing all kitchen cabinets and appliances.

I made a 12k down payment in December 2024 to cover material cost and will pay the labor cost once the project is done early 2025.

How do I handle this tax wise for 2024 and 2025? 

[AmyC]

The house has not been held out for rent so those costs are not eligible for deduction in 2024. They will become part of your basis.  About Publication 527, Residential Rental Property (Including Rental of Vacation Homes)   states: 

Pre-rental expenses.

You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent.

Depreciation

You begin to depreciate your rental property when you place it in service for the production of income. You stop depreciating it either when you have fully recovered your cost or other basis, or when you retire it from service, whichever happens first.

Additions or improvements.

Add to the basis of your property the amount an addition or improvement actually costs you, including any amount you borrowed to make the addition or improvement. This includes all direct costs, such as material and labor, but doesn’t include your own labor. It also includes all expenses related to the addition or improvement.