Rental Property Renovation and payment timing

[baileycl]

I renovated a bathroom in a rental property in 2022 while the tenant was living there (so was in service and paying rent during that time).  The project was completed in December, but I paid for part of it in 2022 before it was done, and the other half in January 2023.  So should I just include the half that I paid for in 2022, then set up another asset when I file my 2023 taxes for other half?  Or should I add the entire project cost in 2022, even though I hadn't paid the entire bill yet?

[AnnetteB6 · Accepted solution]

Since the renovation project is considered to be placed in service when it was completed, include the entire cost of the project when you are entering the Asset for depreciation starting in December 2022.  

You must have had some sort of payment arrangement in place to make two payments, and you did make the payments.  Plus, it would not make sense to add another Asset in the 2023 return for the second half of the cost since the project had been completed in 2022.  If any portion of the project was not complete until 2023, then you should enter the Asset on your 2023 return, claiming the entire cost and placing it in service during 2023.