In July 2019, I purchased a rental property. I made repairs to it and also did made some improvements.
On March 2020, the rental property was put on the market and was ready to be rented. When I filed my taxes for 2019, I did not include any rental property tax deduction repairs or depreciations. Reason being, I was told and also read on the IRS website, that since my rental property was available to rent in the year 2019, that I couldn't start getting tax deductions or depreciation.
Since I had repair cost for 2019 that I never deducted, can I still deduct them for the 2020 tax year?
Since I had improvement cost for 2019 that I never depreciated, can I still depreciate them for the 2020 tax year?
Q. Since I had repair cost for 2019 that I never deducted, can I still deduct them for the 2020 tax year?
A. No, but not exactly. See below.
Q. Since I had improvement cost for 2019 that I never depreciated, can I still depreciate them for the 2020 tax year?
A. Yes. See below for how.
Your costs to get the property ready to rent, both repairs and improvements ,are added to your cost basis and you start depreciation from the date it was available for tent. There are three ways to do. Best: 1. add your total expenditures to your purchase price and depreciate one amount. 2. Add your repairs and improvements together and depreciate that as a 2nd asset. 3. Treat the repairs and improvements, separately as a 2nd and 3rd assets. Either way, you depreciate over 27.5 years.
If some of the money was spent on assets with a shorter life, e.g. carpet or appliances, you'll want to treat those costs as separate assets.
Repair expenses incurred prior to the property being "available for rent" that very first time are flat out not deductible. The property is considered "available for rent" on the first day a renter "could" have moved in. Not before. IRS publication 527 page 4, 1st column says, "Pre-rental expenses.You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent."
Now you must understand the difference between a repair expenses and a property improvement. Additionally, sometimes when doing property improvements, what you may call a repair is actually "a physical part of" that property improvement and is included in the cost of that property improvement.... not some other expense type separate from the property improvement.
Guidance and definitions (in plain english) are provided below.
Rental Property Dates & Numbers That Matter.
Date of Conversion - If this was your primary residence or 2nd home before, then this date is the day AFTER you moved out.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.
RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED
Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.
To be classified as a property improvement, two criteria must be met:
1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.
2) The improvement must add "real" value to the property. In other words, when the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.
Cleaning & Maintenance
Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.
Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.
Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.
However, when you do something like convert the garage into a 3rd bedroom for example, making a 2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.