We prepared our rental property from 12/2017. The rental income didn't come in until 02/2018. Can we deduct the cost for renovation spent in 2017 for the 2017 tax return?

[HelenC1 · Accepted solution]

No, you don't deduct the cost of renovating a rental. If this is the first year of renting the property, the cost of renovation would be added to the cost to calculate the adjusted basis.

Per IRS Publication 527  :Figuring the basis. The basis for depreciation is the lesser of: 

1. The fair market value of the property on the date you changed it to rental use, or 

2 . Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. For other increases and decreases to basis, see Adjusted Basis in chapter 2 pages 7-8.

If your rental is established, you must capitalize (depreciate) any expense you pay to improve your rental property. An expense is for an improvement if it results in:

• a betterment to your property, 
• restores your property, 
• or adapts your property to a new or different use. 
• See 2017 Publication 527 - Internal Revenue Service page 5, Table 1-1 shows examples of many improvements. 

[zmdl_pub]

Got it. Thank you very much!

[HelenC1]

You are very welcome. Thank you for using TurboTax. We really appreciate it!