Updating cost basis of rental property on project that span two calendar years

[Irshad]

Hello,

If a capital improvement incurs expenses over two consecutive years, do you adjust the basis over those two years? For e.g. say two years ago, in the first year of the project, I paid $50K (permit fees, foundation, etc), next year I paid $30K (lumber, finishing, etc.). Do I adjust the basis over those two years in my tax return - first year $50K, next year $30K? Or do I wait until the whole project is over and then adjust the basis with $80K after the second year?

[MinhT1 · Accepted solution]

In principle, an asset will start be to depreciated from the date it is placed in service.

If these 2 payments are part of the same project then you only update the asset (and the cost basis of the property) only the second year when the project is completed and the asset placed in service.