I have a rental property, and I spent about $25000 to repair and remodel it, can I deduct this expense from my rental income, and how?

[papa281]

Do you have to depreciate and take the tax break on the renovation  or can you just  add it to your cost of the property when you sell it?

[DianeW777]

No you cannot just add it to the cost of the property when you sell it under the tax law. 

Yes you should take the depreciation because the tax law, at the time of sale, asks for the depreciation that was 'allowed or allowable'.  It's  basically use it or lose it. You will be required to account for the depreciation expense even if you didn't use it.

Enter your renovation as a new asset on your rental activity and use the depreciation now.  Even if you have a loss that might need to be carried over, you will be able to use all of that loss in the year of sale (if not sold to a related party for less than fair market value (FMV)).

• IRS Publication 544

@papa281 

[papa281]

So any capital improvements (renovations, new kitchen and baths, etc) has to entered as an asset and depreciated.  Is there anything  you can add to the cost basis?

[DawnC]

Your cost basis in the property is generally the amount that you paid for the property (your acquisition cost plus any expenses), including any money you borrowed to buy the place.  If you are converting your property from personal use to rental use, your tax basis in the property is calculated differently.  Your basis is the lower of these two:

• Your acquisition cost
• The fair market value at the time of conversion from personal to rental use

Improvements made before the unit was available for rent, are added to the basis of the building.  Once the property is available for rent, the improvements can be depreciated.  For more information see IRS Topic 414: Rental Income and Expenses.   

Capital Improvements and Depreciation

IRS Tips - Rental  Real Estate

@papa281