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?

[MarilynG1]

All the major improvements you did over the years should be added to the Cost Basis when you set up the Rental Property as an Asset.

For instance, you originally paid 100K for the house, have spent 50K on various major improvements, then set up your Rental Property Cost Basis as 150K to start depreciation with in 2021 (first year of rental).

If you don't add these improvements to the Cost Basis, your Cost Basis is then the original 100K you paid for the house (that will be used to calculate annual depreciation), so it's advantageous to have a higher Cost Basis when starting out (and later when selling). 

Only add improvements that actually added to the value of the home.

Now, if you make 'capital improvements' AFTER the home is available for rent, you add the cost as a Rental Asset and depreciate it (along with the property itself).

Other 'maintenance-type' expenses that you incurred BEFORE the property 'was available for rent' are not deductible.  For example, if you painted the house before you rented it, it's not deductible (even though it needed paint to be rentable).  Paint it after it's a rental, and that's an expense. 

Click this link for detailed info on Rental Property you may find helpful. 

[kwokgorran]

I bought a rental in June 1 and the first 30 days I did some make ready and repairs, and ready and listed on July 1 for rent, for example.

You mentioned expenses before rental are added to the basis for depreciating the property. 

How about Property Taxes and Home Insurance Premium since they are kind of expenses that seem to be for 12 months and spread-out throughout the 12 months.

For property taxes that year, do I have to prorate the amount into before and after July 1 (the placed in service date) so that for the portion before that date I will add it to basis, and after that date I expense it, even though I paid the property taxes at the end of the year (or sometimes even the year after), but either time the property had already become a rental.

Similar question for insurance premium. It was paid at closing for 12 months when it was not a rental, but after 30 days it became a rental. Do I prorate the first month into basis and 11 months into expense?

Thank you.

[PattiF]

Property taxes and insurance premiums can be deducted as an expense from the time that the rental is first purchased. These expenses are not added to the basis. You will deduct the amount of the property tax and insurance premiums that apply to 2021.

Here is a helpful TurboTax article with tips for real estate owners.

[joetaxpayer1]

I spent $3,315 to remodel a bathroom in a $45,500 basis rental cabin. I want to depreciate that expense but I can not find anywhere on Turbo Tax to enter that. Can you point me in the right direction please? 

Thank you. 

[ZoltanB45]

A renovation for $3315 should be expensed not capitalized. If you have losses, it will get carried over anyway. You can record it as Repair and Maintenance where you entered the other Rental expenses.

[joetaxpayer1]

Thank you very much!   I was thinking I had to capitalize any repairs over $2500 or something like that.  My taxes just got a lot easier! 

[sneissani]

Hi,

When you refer to "AFTER the home is available for rent", do you mean the date that the property rented or the date that it became available for rent and was being advertised?

The second questions is: the first year that you purchase the rental property, do you received any tax credit for "depreciation" on the property and/or "improvements" you made on the property for getting it ready for rent?

Thank you in advance for your response.

[kwokgorran]

Besides property taxes and insurance premium, what other expenses are direct expenses that can be deducted as an expense from the time that the rental is first purchased even though I spent the first 30 days to do repairs and make-ready before the rental was listed on the market?
Annual HOA fee? Utilities? 

[kwokgorran]

... and how about Home Inspection fee before purchasing the rental?

Thank you.

[143unclesam]

Insurance Premium, Utilities are what I can think of

[lyk]

After my tenant moved out I updated the kitchen. I put in new counter top,  painted cabinets and all new appliances.  I also painted the rental and put in new carpet.  Do I have to capitalize each item or can I capitalize the total cost.  There are little things like electric switch plates and caulking as part of the invoice.  Do I capitalize those as well?  Thank you

[Tax2019Pay]

Hi, experts: I was using my condo as personal property and then renovated in 2016.  However, I did not deduct the expense nor did I depreciate.  I rent it out after that.  I sold the condo in 2022.  Can I still add the renovation cost to the cost base of the condo? Thanks

[ThomasM125]

Yes, the basis of the condo would be the orginal cost plus improvements. However, you need to deduct depreciation that you could have taken from the basis when you report the sale. You can make an adjustment in the current tax year to claim back depreciation from prior years if you failed to do so. Your other option is to amend prior year returns, but you can only go back three years if you choose that option.

To deduct unclaimed back depreciation, you need to adopt a change in accounting method in the current year. You will need to use the desktop version of TurboTax to do this. This article will explain more on the procedure:  Claiming back depreciation

[Sully42]

This response was back in 2016. Where do I find this same info in 2022 turbo tax because when you enter purchase price, you do not get the screen: Any Property Improvements Made? Where do you put this info on the 2022 CD version of Turbo Tax?

[Cynthiad66]

To enter your rental improvements, simply follow the directions to enter your rental income and expenses. At some point you'll come across the Rental Summary screen. Select Start next to Asset/Depreciation and follow the onscreen instructions. We'll figure out which depreciation method works best in your favor.

You can recover some or all of your improvements by using Form 4562 to report depreciation beginning in the year your rental property is first placed in service, and beginning in any year you make an improvement or add furnishings. Only a percentage of these expenses are deductible in the year they are incurred.

You can recover some or all of your improvements by using Form 4562 to report depreciation beginning in the year your rental property is first placed in service, and beginning in any year you make an improvement or add furnishings. Only a percentage of these expenses are deductible in the year they are incurred.

@Sully42