Report repairs & improvements on rental property and service date: guidance is confusing me

[Anonymous]

In August 2019, I bought a rental property that was immediately advertised for rent.  I didn't get good interest so I decided to take the property off the market and do some renovations to increase the marketability of the property.  The renovations were complete in November.  

Question 1:  What should my date placed in service be: August or November?  I selected November.

With that, I incurred expenses for various improvements and repairs between September and November.

Question 2: In the initial property details, I'm asked "Any property improvements made?"  There's three fields: remodeling, room additions, and special tax assessments.  Since I did remodeling, would I enter those costs I incurred between September and November?  "Remodeling" is not defined, so what gets captured here: improvements or both improvements and repairs?  Further, are these all my "remodeling" expenses made prior to the date entered into service?  

[ColeenD3]

You are correct. Your placed in service date is November.

1) Your improvements are added to the basis if the property and depreicated along with it.

2) Since the improvements were done prior to renting, it is easier and more accurate to add it to the basis rather than keep it be separate. That area can be ulilized if you do any other improvements after you begin renting.

[Carl]

You don't say if you're using the online version of TurboTax 2019, or the Desktop version. As a first time landlord I ***HIGHLY*** recommend the CD/Desktop version that you physically install on  your computer. It's much more user-friendly, easier to navigate and has "forms mode" which can be quite helpful in some instances for a new landlord. That "forms mode" it just flat out not available with the online version.

Question 1: What should my date placed in service be: August or November? I selected November.

Since this was purchased as investment property (rental property is a type of investment) it's in service date is the date you closed on the sale. Period.

Question 2: In the initial property details, I'm asked "Any property improvements made?" There's three fields: remodeling, room additions, and special tax assessments. Since I did remodeling, would I enter those costs I incurred between September and November? "Remodeling" is not defined, so what gets captured here: improvements or both improvements and repairs? Further, are these all my "remodeling" expenses made prior to the date entered into service?

Your property improvements are entered as a physically separate asset in the Assets/Depreciation section. The in service date for the property improvement will be one day after that property improvement was completed and it was "available" for use by a tenant.

I suggest that you answer "NO" to the question asking if any property improvements were  made. Then you personally will enter your property improvements on your own as a physically separate asset, in the assets/depreciation section of the program, when you get to that point in the program.

Now I can understand your confusion. As a first time landlord the program is not as user-friendly as it could be for your specific and explicit scenario. But I'll be more than happy to help as you get this set up. Having everything absolutely spot on perfect in that first year is not a choice - it's a must. Even the tiniest of mistakes will grow exponentially over time. Then when you catch the error years down the road, the cost of fixing it *will* be expensive.

But don't let this scare you. It really is simple. It's kinda like riding a bike. When you started learning you just "knew" you'd never get it. But at this point in your life, you have absolutely no clue of what it's like to "not" be able to ride a bike. You just can't relate because it's been so long. You'll get to that same point with rental property stuff in 1-2 years of dealing with it yourself on taxes.

Do not let the below information I"m providing overwhelm you. It's information that answers questions that I know you will have as you work this through. You just don't know you need to ask those questions yet. 🙂  If you have more questions or need additional clarification, just post back here and I'm more than happy to help out. Been landlording myself for almost 30 years now.

[Carl]

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence before, then this date is the day AFTER you moved out.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.

Repair

Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3^rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.