Can I deduct improvement expenses for a 2nd home purchased in 2025?

[citydog99]

Purchased a 2nd home and I had expenses improving the new home.

[xmasbaby0]

If it is your own "vacation" home etc. then improvements are not deductible, but save your record for someday when you sell the house.

If the house is being used as a rental property , then you may be able to enter the expenses for the improvements.

[DianeW777]

It depends. If you had capital improvements (anything attached to the building) and this is a 2nd home as opposed to a rental property, then all of that expense would be added to the cost basis of the property until you sell it later. This helps to reduce the gain on a future sale.

If the 2nd home is a rental property, then capital improvements are added to the cost basis if completed in the first year of ownership/rental. Any capital improvements taking place after the year it becomes a rental activity would be a depreciable asset all it's own with a starting life in the year it is completed. This has two options available for you to choose if the requirements are met.

1. Depreciate it with a starting date of the completion date (27.5 year recovery)
2. Use the Safe Harbor Election- Small Taxpayers (see details below)

Safe Harbor Election for Small Taxpayers (does not apply to any HOA assessment):

• What can I depreciate or expense with the business safe harbor method?
• How do I handle capital improvements and depreciation for my rental?

Here are the rules you need to meet to take this election:

• Your gross receipts, including all your other income, are $10,000,000 or less.
• Your eligible building has an unadjusted basis of $1,000,000 or less.
• The cost of all repairs, maintenance and improvements is less than or equal to the smallest of these limits:
  • 2% of the unadjusted basis of your building or
  • $10,000

 If you find you do qualify for this option and you want to take the full expense in one year for capital improvements, use the steps below to enter it in your return. 

1. When you come to the screen, Did you buy any items that each cost $2,500 or less in 2025? mark the Yes button and click Continue.
2. On the screen Let's see if you qualify to deduct these items as expenses, mark both of the Yes buttons and click Continue.
3. On the Now, let's review each item you bought screen, mark whether all your new assets cost $2500 or less.
4. If you mark that every item cost $2,500 or less, you will be brought to the Rental Summary screen.  You have elected the De Minimis Safe Harbor provision.
5. If you mark that some cost above $2,500, you will be asked Did you make improvements to rental in 2025?
6. If you say Yes, you will be taken through the screens for the Improvements election.
7. If you say No, you will see the screen Do you have any items that aren't covered by your elections?  Proceed through the screens to enter these assets.
8. On the Rental Summary screen go to the Expenses section and click on the Start/Update box.
9. Continue to the Miscellaneous Expenses? screen and enter the description and amount paid for the assets. Click Continue when finished. 

@citydog99