multi unit rental property purchased and renovated in 2023 but won't be ready to rent until 2025.

[stevec333]

Hi, I bought a two-family rental property in 2023 and had to gut it. The work is still ongoing now. I have had many expenses from holding costs, renovations, taxes, etc in both 2023 and 2024 but it wont be rented until 2025.

I want to confirm that the correct way to report these expenses for both years will be to wait until 2025 even to add the property to a return and add all of the expenses from the previous two years to the adjusted cost basis of the property on my 2025 return.  Is that correct?

Thank you!

[tagteam]

Yes, take your cost basis (purchase price) and add the cost of all improvements to that cost.

The total will be your depreciable basis when the property is placed in service in 2025.

[stevec333]

Is this true even though I elect to classify all of my rental properties as an enterprise and the rental income as Qualified Business Income?