Question about home improvements which I did a couple of years ago before I rented my house partly in a year

[wleuter]

I made some major home improvements after purchasing my house. Three years later, I began to rent my house partly in a year. Can the past home improvements bring any tax benefit / deduction in the renting year? Thanks!

[Critter-3 · Accepted solution]

You will depreciate the home and the cost basis is the lesser of the fair market value at the time of the conversion   OR   the adjusted cost basis ( original purchase price + cost to buy + improvements while you owned the property - any adjustments like credits or prior depreciation taken ).  

[wleuter]

@Critter-3 

Thanks for your answer.

So it won't bring any tax benefit for the year I rent the house, right?

[VolvoGirl]

Well it can increase the depreciation.   Improvements add to the cost that is depreciated.  Here are some links

What expenses can I deduct
https://ttlc.intuit.com/questions/2569433-what-kinds-of-rental-property-expenses-can-i-deduct

FAQ on Rental Improvements and Depreciation
https://ttlc.intuit.com/questions/2900280-how-do-i-handle-capital-improvements-and-depreciation-for-...

What is Rental Depreciation?
https://ttlc.intuit.com/questions/2569432-what-is-rental-depreciation-and-how-does-it-differ-from-an...

Rental Property Taxes
https://ttlc.intuit.com/questions/3826672-can-i-deduct-the-property-real-estate-taxes-on-a-rental-pr...

Read pub 527 on Rental Property….
http://www.irs.gov/pub/irs-pdf/p527.pdf

[wleuter]

@VolvoGirl 

Thanks for your answer.

So even the home improvements happened a couple of years ago, I can still use it to increase the depreciation for my last year's tax deduction?

[wleuter]

@VolvoGirl 

Can you take a look at this reply when you get a chance?

Since I rented my house for the first time in 2022 and report my rental for the first time, just want to make sure if I can use home improvements which were done in 2020 to to calculate my property depreciation for my tax return?

Thank you very much!

[Opus 17]

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@wleuter wrote:

@VolvoGirl 

Thanks for your answer.

So even the home improvements happened a couple of years ago, I can still use it to increase the depreciation for my last year's tax deduction?

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Basically, but it depends on the circumstances.

When you place the house in service as a rental, you must list the value for depreciation.  You depreciate the property over 27.5 years.  The larger the value you can list for depreciation, the more of a deduction you can take.

The value you use for depreciation is either:

a. your adjusted cost basis, or

b. the present fair market value, whichever is less,

c. minus the cost of the land (since land does not depreciate).

Adjusted cost basis is the original purchase price, plus the value of permanent improvements (but not repairs).  Items that can be used to adjust the cost basis are listed in publication 523 on page 8.

https://www.irs.gov/forms-pubs/about-publication-523

For example, suppose the house cost $100,000, you remodeled the kitchen for $20,000, the portion of the original purchase price attributed to the land was $15,000, and the present market value is $150,000.  The basis you list for depreciation is ($100,000 minus $15,000 plus $20,000)= $105,000.