@listed4uk to recap.
Property improvements done any time after you purchased the property are added to the cost basis of the property. It does not matter if the property was your primary residence, 2nd home, vacation home, rental, or anything else while you owned it, when the improvements were done. They still add to the cost basis of the property.
With the only exception being property taxes and mortgage interest, ny other expense, such as maintenance, repairs, etc. incurred "before" the property was available for rent and move in ready "for the very first time" are not deductible at all, anywhere on the tax return.
If the property was not available for rent and move-in ready on or before Dec 31 of the 2022 tax year, then you have nothing to report on your 2022 tax return. The below applies regardless of what tax year you report this for; be it 2022 or next year when you complete your 2023 tax return.
Property improvements done to the structure add to the cost basis of the structure. Some land improvements (not all) add to the cost basis of the land. I am assuming all property improvements done since you originally purchased the property were done to the structure on that property.
I reference my post in this thread with a date/time stamp of June 14, 2019, 11:04PM.
When you initially enter this property in the program, there will be a point where the program will ask you for information from your latest property tax bill. Absolutely nothing on that property tax bill is reported to the IRS or any other taxing authority. (such as your state, if your state taxes personal income.) Typically, the local property tax assessor will value the property on average, 30% below it's FMV. The values assigned by the property tax assessor are used only by the local taxing authority that assessed property taxes for the purpose of determining how much you will pay in property taxes each year. That's pretty much it. (Though other entities may use the tax values for other purposes that have nothing to do with taxes.)
The program uses the information from your most recent property tax bill for the sole purpose of determining what percentage of your original purchase price gets allocated to the land. That's it.
Let's say you purchased the property in 1999 for $81,000. But your latest property tax bill shows a tax value of $41,000 with $32,000 allocated to the structure. (on some tax bills that will appear as "improvement value" or something similar.) Simple math reveals that the land value *for property tax purposes only" is $9000. More math reveals that $9000 is 21.95% of the total $41,000 tax value. Let's round that up to 22% to keep it simple.
Your original purchase price was $81,000, and 22% of $81,000 is $17,820. Therefore, for depreciation purposes your total value is $81,000 with $17,820 allocated to the land and the remaining $63,180 allocated to the structure. Since land is not depreciated, your depreciation will be figured, based on the $63,180 allocated to the structure over the next 27.5 years. But we're not done yet. Lets deal with a property improvement you did before it was a rental. There's two possible ways to deal with this, and I'll cover both ways.
Let's say you put on a new roof in 2017 at a cost of $20,000.
Method 1:
Leave what you already have from above, and enter the new roof as a completely separate asset, which of course would have the same "in service" date as the property itself. Depreciation on that $20,000 would start on the same day as the property itself does.
Method 2: Since the roof was done before you converted it to a rental, you can just add that $20,000 to the structure value, which means depreciation will be based on $83,180 over the next 27.5 years.
Overall, I would recommend you use Method 2 if you expect to own this property past the 10 year life expectancy of the roof. Now while a roof has an expected life span or the IRS tables, there's a good chance that you'll have to replace the roof after 10 years, or risk your insurance company dropping you. Using method 2 you'll be able to "write off" the remaining depreciation on the roof when you replace it with a new one.
Now, other than mortgage interest and property taxes, any repair, maintenance or utility expenses incurred before the property was available for rent and move in ready for that very first time, are just flat out not deductible at all anywhere on your tax return.
Now you mention repairs were completed on 1/1/2023. Could a renter realistically have moved in and fully occupied the property prior to 1/1/2023? If so, could the repairs still have been accomplished after the renter moved in? If yes, then I would declare the property as available for rent and move in ready in Dec of 2022 and go ahead and start reporting it on my 2022 tax return. The fact you have zero days rented in 2022 doesn't matter, so long as it was available for rent and move in ready on whatever day you declare it "in service" in 2022. That way, you can deduct your 1/1/2023 repair expenses on your 2023 tax return when you complete it next year. Otherwise if no, then I wouldn't bother with reporting anything concerning the rental on the 2022 tax return.
