Vacation home rental deductions

[gjkolb]

My wife and I are residents of New Mexico. We bought a vacation home in Oregon in 2021. During 2022 we spent about $20K remodeling the basement of the Oregon vacation home because we will rent it out on a full time basis starting in December of 2022 or starting in January of 2023.  We know we need to report the rental income and can deduct operating expenses after the renter moves in.  Can we deduct the remodeling expenses on our 2022 return?  Does it make a difference if the renter moves in December 2022 or January 2023? 

[tagteam]

You should most likely add the total remodeling cost to your basis for depreciation.

[gjkolb]

Thanks.  Yes, I understand this part of the tax code. But I’m wondering if I can deduct the remodeling expenses from the rental income and if it makes a difference what year I can do this depending on when the renter moves in.

[tagteam · Accepted solution]

If you do the remodel prior to the vacation home being made available for rent, then you can add the cost to the basis of the home and being depreciation deductions as soon as the home is available for rent.

If you do the remodel after the renter moves in, then you would add the total cost as another asset and start depreciation deductions at the time the remodel is completed.

[gjkolb]

Thank you for your detailed assessment.