I have converted 1/2 my basement into a one bedroom apartment that I want to rent out when I'm ready. I started investing money into this project in late 2021, 2022. Even though I haven't rented it out yet, should I have claimed the improvements in 2022? I'm unsure if there is a stipulation that it needs to be rented out in the same year. Thanks!
Hello hispalette,
Thanks for joining the event!
When your basement apartment is ready for rental, in addition to your income and expenses, you will claim depreciation for the value of the rental portion of your property. The improvements you have made will be added to that value then! This is a great article that helps explain depreciation: Rental Real Estate
Good Luck with your new rental!
JanetB211
So, just to be crystal clear- I can claim my improvements from 2021, 2022, 2023 whenever I start renting the apartment?
Yes - Those improvements will be depreciated during the years you have the rental apartment. From the IRS " The cost of improvements is recovered through depreciation."
IRS RENTAL TIPS
I just don't see it. Looks to me like I can't claim improvements if I haven't rented out yet, and once I do rent out, they need to be claimed that year, except I can't because they occurred in prior years. I'm very confused.
Perhaps it is the improvements versus repairs issue with rental properties that might be confusing. A repair would be taken in the year the cost was incurred. However, an improvement to the rental property adds to the basis (value) of the property - and that would be depreciated starting when the property is available for rent. There is a paragraph in the article called "Can I deduct improvements or repairs?" I will send it again here:
Rental Property
It also gives examples of what would be considered a repair or an improvement.
I hope this helps eliminate confusion!