Renovation Costs for a Rental Purchased in 2024 but no Income until 2025?

[lholien]

Hello,

I appreciate any insights on how to report the addition of a new rental property for our portfolio during the 2024 tax year. Here are the details. 

• We purchased a property in another state in March 2024.
• We bought it sight unseen (but had family assisting us with the inspections).
• The intent was to operate it as a mid-term furnished rental for traveling nurses.
• We saw the property in person in April 2024 after flying in to start fixing and furnishing.
• After our assessment, we determined the property was in need of significant renovations.
• It sat vacant until we could arrange financing to cover the renovations.
• We began the renovations in July 2024 and the renovations lasted until late Dec 2024.
• We stayed in the property during the renovations so we could complete as much of the work ourselves as possible. 
• The first tenants moved in February 2025. 

My question are summarized below. 

1. How and when should I report the ongoing renovation costs?
2. Do I add this property as a rental even though there is no income to report?
3. Should the reno costs be filed with my 2024 taxes?
4. Or should I wait to expense the reno costs in 2025 when I have income to offset it?

I looked for similar posts, but was not able to locate any thing similar. Thank you for any advice you may be able to offer. 

[DavidD66]

Your property did not become a rental property until you "put it in service" which means you made it available for rent.  You said the renovations lasted until late December.  if you made it available for rent as of January 1, 2025 it became a rental property on January 1.  That is the date your expenses for that property began to be deductible.  Prior to that, none of your expenses are deductible as rental expenses.  You must capitalize (add to the cost basis of your property) all of your costs during the period you were preparing the property for rental.  The same with your renovation costs - you don't expense them, you add them to the cost of the property and you will depreciate them over 27 1/2 years. Based on the information in your question, you have nothing to report on your 2024 tax return, unless you made it available to rent in December of 2024.  A final note, make sure you separate the land from the building and set them up as separate assets - land is not depreciated.  

[lholien]

Thank you, David. This is very helpful. It makes sense that I should add the renovation costs to the cost basis for the house as of 2025 when we put it into service, and just absorb the expenses we incurred during 2024.

Many thanks!

Laurie