@PoconoRick wrote:
1. I know I don't depreciate them until they are ready to rent, correct?
2. Can apply the taxes and maintence costs as deductions against other rental income? I'm a RE professional.
3. Or if not would I add those costs to my basis when I sell them? (I may sell without ever renting them out or I might renovate some of them and then rent them out in the future)
4. If I don't deduct any of these expenses do I need to even address them anywhere on my return? or just wait until I sell them or decide to rent one out?
1) Yes.
2 and 3) In my OPINION, the 'usual' method is that all costs would be added to Basis until the property is ready for its intended use. However, as a Real Estate Professional, you are already in the 'business' of real estate. So hypothetically, I think it could be deductible now. But without it being available for rent now, and the way that Schedule E is set up for rental, it makes it difficult to do that. And the fact you are not even sure what you will be doing with the properties yet makes it more difficult to do that. So in my opinion, you may want to capitalize those costs.
4) In my opinion, those costs should be automatically capitalized and you don't need to do anything. HOWEVER, I would make the election to capitalize the expenses anyways, especially if you are unsure what you will be doing with the properties. To make the election to capitalize the expenses during the construction/improvement of rehabbing the properties, you will want to make the "§1.266-1(b)" election. It is basically a detailed statement that you are going to capitalize those specific expenses as part of the property. I don't think you'll be able to attach that statement to the e-file TurboTax return, so you may need to mail your tax return with that statement (or go to a tax professional because professional software generally has that ability).
So unfortunately, I don't have a clear-cut answer, but that is what I would do.
