When do i take the deduction?

[curioustaxpayer]

Scenario

• I purchase a property in October of 2022 for the purposes of renting it.
• I spend quite a few months fixing/rehabbing it and making it suitable for renters
• It is made available for rent in March of 2023
• It is leased up in May of 2023 so the property has had no actual rental income for 2022 because it was being rehabbed..
• For the purchase, and during my time holding it for the last few months of 2022 I paid mortgage interest, origination points on the loan, home owner taxes, utilities, etc.

Question:

When can I claim the expense / deductions for the funds spent in 2022 to acquire and hold the rental property while it was being rehabbed for rent? Do I take those deductions when I file my 2022 taxes or do I take those deductions when I file my 2023 tax return since the property was not put "in service" until 2023 even though I purchased it and had expenses in 2022?

[Anonymous_]

You can't deduct typical rental real estate expenses (utilities, repairs, etc.) until the property is placed in service as a rental. 

You can add improvements to your basis for depreciation and you can also deduct mortgage interest and property taxes on Schedule A (both are subject to limitations).

[Critter-3 · Accepted solution]

You can't deduct typical rental real estate expenses (utilities, repairs, etc.) until the property is placed in service as a rental  HOWEVER  these expenses can be CAPITALIZED  if you make a timely election.  

[curioustaxpayer]

Thank you very much.