Purchased second investment home out of state in Dec 2019

[desertf150]

Hello, looking for some help...

I live in CA and purchased a second home in GA. This home is an investment property and will be used as a rental. The home was purchased in Dec 2019, but I didn't get a renter in there until Feb 2020 and had no rental income in 2019. I also didn't make my first payment on the property until 2/1/20.

Here are my questions:

1. I know I will have to submit taxes for GA in 2020 because I will have rental income. I have no rental income in 2019, but do I still have to submit taxes in GA because I actually purchased the home in 2019?

2. Since I purchased the home in 2019, can I deduct anything this year that I paid as part of the purchase (prorated interest, taxes, etc.)?

3. I traveled to GA, installed new appliances, and made some repairs to the home in 2019 immediately after purchase to get it ready to list as a rental. Can I deduct these costs since they were accrued BEFORE the home actually had its first renter?

Thank you in advance for your help!

[AlexanderS08]

1. The lowest income to generate a filing requirement in Georgia is $6,700. Since your income of $0 is less than that, you are NOT required to file a Georgia return for 2019.

2.Yes, you can deduct the expenses on your federal return. Interest expenses, taxes, etc. You should ask your mortgage company about whether or not a Form 1098 will be generated which lists the interest amount for you.

3. In theory, this will generate a loss for 2019 which will be suspended until it has income to offset it. The catch is you can't claim the expenses in 2020 if they were incurred in 2019. So you may want to factor this into your decision on whether or not to file a Georgia return. 

If it were me, I would set up the rental on the Federal return and claim the loss (you will also claim depreciation because it is a use it or lose it deduction). I would also file the Georgia return even if not required because it will make keeping track of the property a lot easier in the long run. 

[desertf150]

@AlexanderS08 

This is good information, thanks. 

In response to your following statement:

"If it were me, I would set up the rental on the Federal return and claim the loss (you will also claim depreciation because it is a use it or lose it deduction).", where would I then enter the expenses (repairs, improvements, etc.) and the depreciation? I am unable to enter that information under "Rental Properties and Royalties as it tells me to delete the property since there were no days I used it as an actual rental in 2019. It doesn't let me advance enough to be able to enter that information.

Thanks. 

[AmyC]

Deductions are only allowed if the house was held out for rent. If you had it up for rent in December, then you can enter the days you had it available for rent instead of rented. If you were busy making improvements and did not have it available for rent, add that to the basis of the house and wait until 2020 to claim.

[Carl]

1. I know I will have to submit taxes for GA in 2020 because I will have rental income. I have no rental income in 2019, but do I still have to submit taxes in GA because I actually purchased the home in 2019?

Based on the information you have provided, you have no need and no reason to file a 2019 GA state tax return. Only a federal return

2. Since I purchased the home in 2019, can I deduct anything this year that I paid as part of the purchase (prorated interest, taxes, etc.)?

You will deal with "EVERYTHING" concerning the acquisition of the property on your 2020 taxes next year. Both your 2020 federal return and what will be your first 2020 GA state return, as well as a return for whatever your resident state is, if your resident state taxes personal income.

3. I traveled to GA, installed new appliances, and made some repairs to the home in 2019 immediately after purchase to get it ready to list as a rental. Can I deduct these costs since they were accrued BEFORE the home actually had its first renter?

No. When you initially acquire rental property, repair and maintenance expenses incurred "to prepare the property for rent" for that first time, are just flat out not deductible. But if your "repair" costs aren't to excessive, add them to the cost basis of the appliances if the "repair" done is someone related to the appliances.

As for the appliances, those are rental assets. However, if they cost less than $2,500 you can expense them (and I recommend you do) under the Safe Harbor De-Minimus act. But you'll expense them the year placed "in service" which means you can do so on your 2020 tax return.

As a final note, if you drove from CA to GA for this, then I recommend you "NOT" claim vehicle use for this rental. In the long run it won't be worth it and will create a potential tax filing nightmare (Fed and GA state) for you in the tax year you sell or otherwise dispose of that vehicle.

If you flew to GA for the primary purpose of buying/installing appliances, then include your airfare in the cost basis of the appliances. Of course, if that makes the cost of the appliances more than $2,500 then you have no choice but to capitalize and depreciate them. Most likely though, you'd still be able to take the 50% special depreciation allowance the first year they're placed in service. (Though I don't know why you'd want to take that special allowance, since doing so will not make one single penny of difference in your tax liability)