Cost Basis before being in service

8 Replies

Ok my understanding is that repairs and improvements to get a property fixed up so it can be put into service as a rental are added to the basis of the property per what the IRS says.  So with that said, I have a couple questions.

#1 -If you bought the property last year and did nothing to it because you didn't have the time so it just sat there, do you record it on your 2014 taxes and if so what do you record? It will need repairs and improvements before it can be placed in service, do you then add them in the next year?  If it is not placed in service yet, do you do anything?

#2 Different property, if you bought it last year and did repairs and improvements up through Jan. and Feb. of this year and then placed it in service this year, do you account for anything for taxes for last year?

Regards,

Mark

Nothing for either except for property taxes which may be taken on Schedule A.

Originally posted by @Steven Hamilton II :

Nothing for either except for property taxes which may be taken on Schedule A.

 I have a situation similar to Mark's #2 above ... purchased and rehabbed sfr last year and into Jan of 2015 with no renter actually in the property until Jan of 2015 when the rehab was complete, the difference being that I actually received rent in 2014 from a tenant (vacation rental) that didn't actually stay in the property until 2015.  I do cash accounting.  Do I set this up on my tax return as if it was rented in 2014?

@Steven Hamilton II  Thanks for the reply back.  I was sort of leaning that way but glad you could comment. 

Another quick question.  I also picked up a mobile home in a park at the end of 2014, I have lot rent and utilities for a few months in 2014 and whatever until thing are done and it is put into service.  Is this the same situation that I would add the lot rent and utilities into the cost basis until it is put into service?  Also then after it is in service do the lot rent and utilities become becomes expenses for each year?  Thanks again for the response.

Originally posted by @Mark Gruetzmacher :

@Steven Hamilton II Thanks for the reply back.  I was sort of leaning that way but glad you could comment. 

Another quick question.  I also picked up a mobile home in a park at the end of 2014, I have lot rent and utilities for a few months in 2014 and whatever until thing are done and it is put into service.  Is this the same situation that I would add the lot rent and utilities into the cost basis until it is put into service?  Also then after it is in service do the lot rent and utilities become becomes expenses for each year?  Thanks again for the response.

 Mark,

Was it ready and available for rent?  If not and needed renovations you must capitalize those items.

@Steven Hamilton II  No it was not available for rent either.  It needed all sorts of stuff before it could be ready to rent.  So again I should lump all of it together, repairs, utilities, lot rent, etc and add to the basis/capitalize them and then once it is ready to rent then you can expense those out unless they are improvements, correct?

@Steven Hamilton II or any other accountant. What about utilities expense before the property is placed in service does this also get added to the cost basis?

You have to check with your accountant, but you can usually include in your cost basis the maintenance costs for a rental unit that were paid before the property is offered for rent. It would include things like landscaping and utilities ( but not the cost of connecting utilities).

Where it gets dicey is when you occupy the property. Then you have to separate out how much of the expenses were for your occupation versus when you were making it available for rent.

Originally posted by @Eddie T. :

@Steven Hamilton II or any other accountant. What about utilities expense before the property is placed in service does this also get added to the cost basis?

 They will be added to the basis.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here