Tax Advise, 1st Time Duplex House Hacker, Large Renovation Spend in Y1.

Rental Property Investor · Danville, VA · Member since 2024 · 26 posts · 3 votes

Advice greatly appreciated, so that i know what to expect and best way to take advantage of log for future.

I purchased a Duplex for primary residence in May of this year, I am originally from the UK and this is my first US purchase so i am probably less clued up than the average person on here. I am currently nearly finished with completely remodelling both sides, and anticipate my renovation spends will be around $70,000 - the other side that i dont live in, is not rented yet so i dont have any active income to offset yet.

When i file taxes and show all my receipts, is there any benefit for me this filing year or not? and will there be down the road if not?

Thank You Im Advance to whomever shares guidance.

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Sean Culloden

CPA · Member since 2025 · 8 posts · 6 votes

10mo

Quote from @Josh Cocker:

Thanks Sean, this is extremely helpful. I have been keeping a spreadsheet of all expenses and if any materials or contractors work was split across both sides ive been keeping a ratio of which expense is for which to hopefully make life easier for the CPA.

Josh, glad I could help.

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Josh Cocker
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Rental Property Investor · Danville, VA · Member since 2024 · 26 posts · 3 votes
10mo
P.S with my W2 income amount, i believe I would be available to benefit from the active participation exception, if i advertise the rental side of the duplex or rent before 31st December. with all the receipts and expenses occurred in the renovation process, i am hoping to be able to report a loss on the rental to the affect of the exception limit.
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Sean Culloden
CPA · Member since 2025 · 8 posts · 6 votes
10mo
Receipts by themselves won't get you a write off. The rental side has to be finished and available to rent for anything to count.

If the unit isn’t ready and advertised by December 31, there won't be a tax benefit this year. The reno costs just get rolled into the property and depreciation starts next year.

If it is ready to rent by year end, you can start depreciation and probably show a small rental loss even without any rent coming in. Most of that 70k is improvements and not repairs I assume, so it doesn’t get written off all at once and is therefore capitalized and depreciated over time. Also only the costs allocable to the rental unit will be eligible to be depreciated/deducted (Is all of the 70k attributable to the rental unit?). With only a couple weeks left in the year, the deduction is going to be small.

The 25k rule doesn’t mean you get to deduct 25k of reno costs. It just lets you use actual rental losses up to 25k against W2 income if your income is 100k or less, with the benefit phasing out between 100k and 150k. In a late December start year, you’re unlikely to come anywhere close to that number.
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Josh Cocker
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Rental Property Investor · Danville, VA · Member since 2024 · 26 posts · 3 votes
10mo
Thank you for this Sean, this is very helpful sir. Okay, now i know what to expect etc I can plan my expectations accordingly, which i think in this circumstance is going to be low to none in terms of a taxable or financial benefit from this years renovations.
Hopefully next year may be better if a large portion of the year shows rental income.
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Josh Cocker
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Rental Property Investor · Danville, VA · Member since 2024 · 26 posts · 3 votes
10mo
Also Sean, how would you best advise i file? Do i need to start working with a CPA so all these receipts and renovations costs can be logged?
I only used standardized deductions via Turbo Tennant before as i rented. This is new territory for me.
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Sean Culloden
CPA · Member since 2025 · 8 posts · 6 votes
10mo
At this point, yeah, this is usually where a CPA starts to make sense. Once you have a duplex with a rental side, you’re dealing with Schedule E, splitting expenses between personal and rental, capitalizing improvements, and tracking depreciation. That’s a step up from basic renter tax situations.

A CPA will cost more than TurboTax, but as with a lot of things in life, you generally get what you pay for. The value is making sure things are set up correctly from the start and avoiding mistakes that can get expensive later.

For now, the most important thing is just keeping good records. Save all receipts and invoices, and note what was for the rental unit versus your personal side. A CPA can help organize and categorize everything properly when it’s time to file, and that groundwork will matter a lot more next year.

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Josh Cocker
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Rental Property Investor · Danville, VA · Member since 2024 · 26 posts · 3 votes
10mo
Thanks Sean, this is extremely helpful. I have been keeping a spreadsheet of all expenses and if any materials or contractors work was split across both sides ive been keeping a ratio of which expense is for which to hopefully make life easier for the CPA.
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- Sean Culloden
  CPA · Member since 2025 · 8 posts · 6 votes
  10mo
  Quote from @Josh Cocker:
  
  Thanks Sean, this is extremely helpful. I have been keeping a spreadsheet of all expenses and if any materials or contractors work was split across both sides ive been keeping a ratio of which expense is for which to hopefully make life easier for the CPA.
  
  Josh, glad I could help.
  1 Reply
Aaron ZimmermanBusiness Member
Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
10mo
There’s a lot here and I can provide how I would think about this. 1. You’ll want to compile receipts in a spreadsheet for the rehab. Ideally if you could separate out between 5 (appliances), 15 (land improvements), and 27.5 year property that’s helpful. You’ll also want to separately break out common units and your unit as these would be capitalized upon move out. If you’d like, I can send you a spreadsheet I have for this. 2. Determine placed in service date. This is the date that you advertise for rent and it’s ready to be used. After this date, most items can be expensed. Before this date, costs incurred will need to be capitalized. 3. Provide your cpa a summarized schedule document. I’m happy to provide you with the templates I have.
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
10mo
Quote from @Josh Cocker:

I purchased a Duplex for primary residence in May of this year, I am originally from the UK and this is my first US purchase so i am probably less clued up than the average person on here. I am currently nearly finished with completely remodelling both sides, and anticipate my renovation spends will be around $70,000 - the other side that i dont live in, is not rented yet so i dont have any active income to offset yet.
When i file taxes and show all my receipts, is there any benefit for me this filing year or not? and will there be down the road if not?

Coming from UK, you actually might be "more clued" than most of the locals. ;) Or, rather, equally clueless.
Nobody can tell you whether there's a tax benefit this year or next year without having your complete financial picture. Some clues are here, even though not directly on the topic:
https://www.biggerpockets.com/forums/51/topics/1121063-expla...
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
10mo
Hi @Josh Cocker! Great question and you’ve already gotten some solid input here.

Yes, there can be a benefit this year. As others mentioned, even if the rental side isn’t occupied yet, once it’s placed in service (meaning it’s ready and available to rent), it’s treated as a rental for tax purposes. That means your rental-related expenses can generally be deducted this year, even without rental income yet.

Those expenses will likely create a loss. If you materially participate (meeting those requirements) and your income falls within the limits, that loss may be treated as non-passive, which could allow you to offset some of your W-2 or other non-passive income. Actively advertising the unit or having it rent-ready before December 31 strengthens that position.

If, for any reason, you can’t use the loss this year, it doesn’t disappear, it carries forward and can be used in future years when you have rental income or upon sale.

The key is good documentation, keep all receipts, track when the unit was placed in service, and be clear about which expenses relate to the rental side versus your primary residence.

And yes, it is a good idea to go ahead and start interviewing CPAs and working with one who understands real estate now, especially if you want to strategize, make the most of your rentals, and scale.
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Josh Cocker
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Rental Property Investor · Danville, VA · Member since 2024 · 26 posts · 3 votes
10mo
Thank You Everyone here! This is a lot of good information to take in!
Lets see i can get it rent ready before the end of the year and placed in service!
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