Subdivide cost tax

[chunhuach]

I bought a property 2015, this property has 2 houses on it. Over the last 4 years I’ve trying to subdivided it, I already spent 300k on it(engineering, install sewer, utilities, etc), expect it to be finalized in 2024. i will get 3 lots, two with houses, one vacant lot.

I did notreport any of the money I spent in the past years for the subdividing work. Do I need to?

Do I need to report the cost somehow for 2024 tax? Or need to wait till the lots are sold? the cost is mainly for land improvement so it's really not appreciable.

Do I separate into 3 properties on my 2024 tax? Or keep it as a single property until any lot is sold?

I do plan to build on one the vacant lot. 

The property was acquired as part of 1031 exchange, making it more complicated. 

If I separate them out, I can separate basic, depreciation, etc. but it's hard to handle things like carry-over business lost (repair cost - rent payment), carry-over QBI lost.

if I don't separate, the whole thing is one property, when I sell one house or one lot, I can report that as an asset sale, easier to handle in TT, but not sure if this is up to tax code.

Also if I don't separate, the subdividing cost will not need to be reported right?

[DianeW777]

Let's list each question with the answer.  You can choose to separate now or later at the time of sale after you review the information below.

1. Do I need to report the cost somehow for 2024 tax?  
   • No.  The cost of improvements  will be used at the time of sale, or the date placed in service if applicable before sale.  Include the cost for each lot as it applies.  
2. Do I separate into 3 properties on my 2024 tax? 
   • It depends. If the property is rental property you must maintain the original rental cost basis and date placed in service as it was first listed on your tax return.  My advice would be to separate the original land and buildings into three separate rental properties.  
     • Land is never depreciable so the vacant lot original cost basis would be separated out from the original land cost basis in total and a portion given to each property. The amount for the vacant  land will remain idle until you build on it and place it in service (available for rent). Also include the portion of the improvements that apply to this piece of land.  
       • You can use county or city tax assessments to arrive at the percentage of each building and land. Then the acreage can be used to split the land. Use the same percentages for the improvements recently made.
   • Use the cost of improvements, as a new asset for the properties already in use on the two lots.  Calculate the amount that is attributable to each lot as a new asset for each property, placed in service in 2023 where applicable.  If these improvements are not available for use until 2024, list each new asset on your 2024 tax return.  
3. These steps would make reporting any sale easier in the year of sale. 
4. The subdivision costs will not be lost since you can add a new asset for each lot in 2023 (or 2024 based on date placed in service for use).
5. Any carryover losses can likewise be divided with the percentages you determine from the tax assessments or a method you believe is a more accurate reflection.

Reminder:  The vacant lot must remain idle until it is available for use when you add the building and place it in service.