Expenses before "in-service" date?

2 Replies

I bought my fixer-upper last March, and it took until November before it was ready to show, i.e. place "in service."

I asked prior, if the insurance had to be capitalized or if it was an expense, and @StevenHamiltonII was kind enough to respond, expense. 

Now that I'm hacking away at the tax form, I am wondering if anything else can be expenses prior to 'in service' date. I'm looking at the Real Estate taxes and Utilities, to be specific, but if I'm missing anything else, I'm happy to know. 

I've sifted through Pub 527, with little success. It's pretty clear that depreciation starts after the building is placed in service, but I don't find where it separates out what else can be taken prior. (Thanks) 

Disclaimer: I am not an accountant, just reading the instructions.  From http://www.irs.gov/pub/irs-pdf/p527.pdf top of page 8: 

Increases to basis. You must increase the basis of any property by the cost of all items properly added to a capital account. These include the following.

  • The cost of any additions or improvements made before placing your property into service as a rental that have a useful life of more than 1 year.

Sounds like you would expense more than deduct on large rehabs when the property is not in service. Later on page 8, though, "The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property." Might be worth browsing through the publication again....

Chris, Thank you for the response. It seems I am getting hung up over the prior to in service date. This issue forces some things that would be a repair to be added to basis. 

If I'm understanding this correctly, property tax and utilities are similar to the insurance and get expensed, but all other work, even if it would seem a repair after in-service date, is added to basis. 

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