For a property I inherited that I will make into a rental property, I understand that improvements count towards depreciation and repairs count towards deductions. However, are repairs and maintenance only counted in the calendar year that I start earning rental income?
Sounds like you've got a good handle on the different types of expenditures, capital vs expenses.
Ready and available is a slightly different definition than first month of rent. I've included the article references for your research.
Depreciation is a capital expense. It is the mechanism for recovering your cost in an income-producing property and must be taken over the expected life of the property. You can begin to depreciate rental property when it is ready and available for rent.
You didn't mention startup, but some of your costs may fall into that category as well. You can take the startup costs deduction in the year that your business begins. The deduction is available for expenses incurred during the process of creating or investigating a new business, such as market research and advertising costs.
Thanks, Teri. It sounds like the capital improvements can be done in a previous calendar year because it factors into the depreciation.
But I'm still not clear on whether maintenance can be done in a previous calendar year before the property is ready and available for rent. Can you clarify which year maintenance needs to be done to count it as a deduction?
Once your property is ready and available for rent, rental activity (i.e., operating expenses) begins. You may not have tenants yet; you can have the certificate of occupancy and advertise for renters while the property is vacant. That still counts as rental activity
You are correct, rental expenses are only deductible in the year paid. The repairs and maintenance costs incurred preparing the property to be in shape to be rented are considered start up expenses and are amortized on either Schedule E or C depending upon where the rental income and expense are being reported. Once the property is in rentable condition and held out for rental, expenses can be deducted as ordinary and necessary expenses even if the property is not being rented.
For a more detailed discussion related to rental real estate, please see:
Rental Real Estate and Taxes - TurboTax - Intuit