Purchased new construction home investment property Q4 2019....

[pixelrogue1]

Purchased new construction home as investment property Q4 2019. Holidays, additional work needed, time of year delayed renting. Home is now rented (in 2020,) yet purchase was significant with many expenses and depreciation started in Q4 2019. 

TT appears to fixing the new purchase to its in-service date of first rental, meaning we would not add this to our 2019 taxes at all, rather 2020 taxes next year. Are there no tax benefits to the purchase in 2019, the mortgage and expenses we have been floating since closing? We do have mortgage interest statements, for example.

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Added tidbit. We sold an investment property in Q4 2019 and purchased the new one through a 1031 Exchange. 

[RobertG]

You can't deduct rental expenses until the property is available for rent.

You can deduct Mortgage interest and property taxes on Schedule A, subject to the limitations.

[pixelrogue1]

I understand if it hasn't been rented, you can't deduct rental expenses. 

On the investment property side, there were mortgage payments, association fees, taxes, purchase expenses etc. Are these just considered 'second' homes, and then have to 'convert' them to rentals for 2020 return? 
The 1031 Exchange is also a 'like-in-kind,'  rental-to-rental..  (?)

[KarenM90]

Yes, you are correct.  You can't deduct the rental expenses until it is available to rent.

You can deduct the property taxes on Schedule A for 2019.

You may be able to deduct the mortgage interest, prior to renting it out, if it qualifies as a 2nd home.  Please see this link for more information:  Mortgage Interest on 2nd home.

The majority of your expenses (except for the mortgage interest and taxes) will be added to the basis of the property.  Please note that since this is a like-kind exchange, your basis isn't necessarily (probably isn't) the "purchase price of the property."  Your Exchange Facilitator should be able to help you with your basis calculation if you don't know it.  Generally, it will be calculated (before the addition of the pre-rental property expenses) as follows:  

• Start with the adjusted basis in the property you sold, including any mortgage.
• Add the value of any other property you transfer in the exchange, the mortgage amount on your new property, the amount of cash you’re contributing to the new purchase, and any recognized gain on the sold property.
• Subtract any money or property you received in the exchange, the amount of the mortgage on the sold property, and any recognized loss on any property sold in the exchange.

[pixelrogue1]

Excellent response and want to say thank you as first item.

The information brings into question another concern, as we actually purchased two new construction rentals at the same time; 1031 Exchange was used for the purchase above.

• Am I understanding this correctly that there would be little-to-know tax advantages for the year 2019, regardless of how much was spent in fees, improvements and the like? 
  (taxes/mortgage interest for one of the two properties as a vacation home)
  (add in expenses as part of the calculation for basis of property, even though expenses occurred after closing date?)
  
  
• When converting to rentals for 2020 taxes, would we add in the extra investment and work on the properties even though work, purchases and labor were made/hired in 2019?

[DianeC958]

Yes, that is correct there are little to no advantages for 2019.

Yes,  the expenses for 2019 are going to add to your basis in the property.  Once you are using the properties as rentals then you can take an amount for depreciation for all of the costs that you put into the rentals during 2019

@pixelrogue1

[pixelrogue1]

Thank you for the patience as I clarify a little further. 

2020 taxes, I can add in the updates/improvements etc for 2019 and this would be ok to give the improvements a 2019 start date, or all the improvements and costs use the in-service date of 2020 (even though the receipts are 2019?)

[Irene2805]

The updates/improvements are considered put in service at the same time as the house itself.  You can enter them as depreciable assets with a start date of 2020.

[pixelrogue1]

Can I get the 2019 taxes/association fees and such into the 2019 tax return for both properties?

• Property 1 = vacation home.
• Property 2 = ????  (which is the 1031 exchange)

Or, maybe best to just not include either property on 2019, and add the expenses to the 2020 return (but can't add 2 years worth of real estate taxes, right?)

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Each property has its own LLC w/EIN.

[DianeC958]

The real estate taxes you pay are deductible currently as an Itemized deduction on your personal return.  There is a limit of $10,000 that is deductible for property taxes and state income tax paid.

You cannot deduct the property taxes you paid in 2019 to your 2020 return.  If you do not deduct them on your 2019 return, you add them to your basis in the property and depreciate them as part of the cost of the property.

The association fees you paid in 2019 need to be added to the cost basis of each property.

[pixelrogue1]

Thank you!

[pixelrogue1]

As confirmation, looking to confirm this plan (maybe this would need to be a new post?)

• Add both new properties to schedule E for 2019 tax return.
• Do not add depreciating assets until 2020
  (Would it make sense to list assets on the 2019 return but NOT include inservice dates...then add the inservice dates for these items on the 2020 return?)
• Mortgage interest and taxes would be schedule E
• Capitalize expenses such as association fees (add them in as part of the purchase - to the basis, then they depreciate based on building)

[JohnB5677]

You summarized it perfectly.  It would be acceptable to post the depreciable assets and hold off on the date in service.

[pixelrogue1]

Confirming Capitalize = add incurred expenses to the cost of the purchase?

One of the properties was purchased  through a 1031 exchange
Wondering if I complete everything the same as in past years for the sold property (A,) set up the new properties (as described above) (B &C.) Once those buildings are inputted to TT in full, then go back and record the sale of A (to purchase of C)...through like-in-kind (for 8824)? Does the 1031 fees get attached to the sold property, or new?

TT > Business Income & Expenses > Selected Property > Enter Common Expenses
Complete fields: Real Estate Taxes | Insurance | Commissions | Professional Fees | Management Fees (for condo fees)

https://ttlc.intuit.com/community/entering-importing/help/where-do-i-enter-a-like-kind-exchange-form...

[mchrid]

Hi, Do you mind sharing what you ended up doing. I am in the same boat as you - Sold a property in 2021 and doing a 1031 exchange to a new property that is currently construction. Should I add the new property to TT in the year it rents out (likely 2022) and compete the like-in-kind exchange in 2022 as well? Thanks!