I took a construction loan in 2018 to have a fourplex built for renting it out. The construction will finish during 2019. Do I have anything to report on 2018 taxes?

[cvmanoj-cse]

I took a construction loan in 2018 to have a fourplex built for renting it out. The fourplex construction will not complete until mid 2019. I understand that the interest paid during construction needs to be added to cost basis while the interest before/after construction can be claimed as a expense. But this should be done during 2019 taxes, correct ? Also, the fourplex land is currently registered on my name. Would that affect my 2018 taxes in anyway?

[DDollar · Accepted solution]

You are correct.  Interest paid during construction must be added to the cost basis of the property, and interest incurred before and after construction can be expensed.   The construction period ends when all production activities reasonably expected to be done are completed and the property is placed in service—that is, made available for rent.  Once that occurs, you can deduct your interest and other expenses.  As for the property tax paid in 2018, you can either deduct it as an itemized deduction (may be limited due to SALT deduction limit) or added to your cost basis.

[cvmanoj21]

Thank you very much for your response! Will the cost basis depreciation also begin only after the property is placed in service? If I add the property tax paid in 2018 to the cost basis, nothing related to fourplex will need to be reported on 2018 taxes, right?

[cvmanoj21]

Thank you very much for your response! Will the cost basis depreciation also begin only after the property is placed in service? If I add the property tax paid in 2018 to the cost basis, nothing related to fourplex will need to be reported on 2018 taxes, right?

[DDollar]

That is correct.  It is not a "rental property" unless and until it is placed in service.  Does not have to be "rented" just has to be made available to rent.

[cvmanoj21]

Thank you!