I am buying a house. My plan is to hold it about 2 years and during that time it will start as a rental (appr 6 months), then I will completely rehab it (appr 9-12 months), and then will either sell it or rent it again depending on the market.
I assume I would start handling it like a rental, expensing and depreciating as a rental. But then what do I do when I take it off the rental market in order to start rennovations? Would I stop depreciating and stop deducting carrying costs for that time (interest, taxes, insurance, maintenance), and instead add those to my basis? Then start treating as a rental again once it's re-rented?
What are you trying to figure out? Are you looking at taxes? Why are you waiting 6 months to rehab it?
We need a little help in your question structure in order to help answer.
Yes, the tax questions I asked in the original post.
Several reasons including: 1) It will take me several months to get plans, bids, permits. 2) It's in a high snow area, not really feasible to start until spring. Renting during the first winter will help cover my carrying costs.
It is my understanding that the property is still in service as a rental during a renovation period. If you advertise for rent after the renovations are complete, then the property was never "out of service". Continue to take your normal rental activity expenses even though you don't have rental income during the renovation period.
BTW: Renovation costs are an adjustment to basis anyway, even if the property is in service as a rental.
thanks. I understand renovation costs are added to basis, but what about carrying costs during the renovation, such as interest, property taxes, utilities and yard service. Deduct those as if it were still rented?