Property is not in rented yet- major rehab

Tax, SDIRAs & Cost Segregation
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Property is not in rented yet- major rehab

Monika Sharpe
Member since 2021 · 4 posts · 1 vote

Hello,

I have been looking a lot regarding the expense for the rehab and how to include them on tax return. We inherited property in FL in 2024 (no mortgage). We paid past due property taxes ¤t property tax. We don't itemize. We paid all utilities each month as the property was in terrible condition. My husband flew 3times during a year there and started working in rehabs (looked for contractors, talked to lawyers, etc. etc). Property is almost ready to rent- estimated date 4/15 or 5/1/2025.

I understand that the expenses for materials, labor and rehab will go under my cost basis once the property is rented out. 

However, can I deduct the property taxes (around 3K), utilities (around 2K), flights &car rental this year?

Thank you!

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  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 906 votes
    1y

    Yes, you should be able to deduct the property taxes and utilities, but only if the property is considered a rental property (either currently rented or actively being held out for rent).

    As for travel costs related to purchasing the property, those are typically not deductible as rental expenses, but they can be included as part of your cost basis in the property, which could reduce your capital gains when you eventually sell. Travel expenses are deductible once it is rented. I would recommend speaking to your tax professional to ensure you’re handling it correctly and maximizing your deductions.

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  • Natalie KolodijBusiness Member
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    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    1y

    If this property is going to be a rental then all of those costs you'll typically capitalize and add to the basis of the property. To the IRS an asset's basis is allll of the costs it took to get it ready for it's intended use. 

    There is nowhere to deduct those expenses this year. You don't have a rental yet to deduct them against. 

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