Yes, you are correct. The tax law is clear in the respect that an asset must be ready and available for use before you can add it as an expense or an asset for your rental activity and S-Corp. Capitalizing them means exactly that and the deduction is delayed.
- IRS Publication 946, page 30: You begin to claim depreciation when your property is placed in service for either use in a trade or business or the production of income. The placed in service date for your property is the date the property is ready and available for a specific use.
Included is the rule for Safe Harbor for Small Taxpayers for your possible use, when the construction is complete next year.
You are not required to capitalize as an improvement, and therefore may be permitted to deduct, the costs of work performed on owned or leased buildings, e.g., repairs, maintenance, improvements or similar costs, that fall into the safe harbor election for small taxpayers. The requirements of the safe harbor election for small taxpayers are:
- Average annual gross receipts of $10 million or less; and
- Owns or leases building property with an unadjusted basis of less than $1 million or less; and
- The total amount paid during the taxable year for repairs, maintenance, improvements, or similar activities performed on such building property doesn't exceed the lesser of-
- Two percent of the unadjusted basis of the eligible building property; or
- $10,000 (for questions about how to calculate the unadjusted basis, refer to "Figuring the Unadjusted Basis of Your Property" in IRS Publication 946
- You make the election to use the safe harbor for each taxable year in which qualifying amounts are incurred.
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