How to mark Home Improvements as Depreciations, not Expenses

[Ognak1]

Hello

I'm at the section that says "LET'S SEE IF YOU CAN CLAIM THESE IMPROVEMENTS AS EXPENSES"

I want to make sure these are Depreciated.

On "Do you want to take this annual election" do I check YES or NO?

Thanks

[ColeenD3]

No, do not deviate from the standard depreciation questions. It will be rental real estate property, depreciated over 27.5 years.

[Ognak1]

It's a Land Improvement

[Ognak1]

I should describe more,

We have a rental property that's been renting 12 years.

In 2020 we built a 2nd house on the same lot in the backyard, costing $350K. This 2nd house was not rented out in 2020 because it wasn't completed. The $350K spent, wouldn't that be a LAND IMPROVEMENT? We would like the $350k as a Depreciation.

Or, because the front house continued to be rented during this period, I would mark it as RENTAL REAL ESTATE?

Thx

[npierson7]

Land improvements you can add to cost basis of your land. You cannot depreciate land, although I recommend to add land to your depreciation schedule as non depreciative asset, to keep track of improvements. It will be very helpful when you sell your assets. 

[Ognak1]

I should describe more,

In 2020 we built a 2nd house in the backyard of a property we rent consitently, costing $350K.

This 2nd house was not rented out in 2020 because it wasn't completed.

The $350K spent, wouldn't that be a LAND IMPROVEMENT? We would like the $350k as a Depreciation.

Or, because the front house continued to be rented during this period, I would mark it as RENTAL REAL ESTATE?

Thx

[DaveF1006]

No. The entire cost of the second house is an depreciable asset and is not a land improvement. You would classify it as rental real estate in the assets/depreciation section of your return. You will begin depreciating it when you put it into service as a rental property. 

Since the 2nd house was not complete and not ready to be rented in 2020, you will not report this on your 2020 return. It will be considered placed in service when it is complete and ready to accept renters.  

[Ognak1]

OK, So on these taxes we don"t mention any of the expenses? 

We save it all for 2021?

[DaveF1006]

Yes, that is correct. This will all be reported on your 2021 return since it is placed in service this year.