Investor · Denver, PA · Member since 2015 · 193 posts · 55 votes
Hi everyone, I have a quick tax question I'm looking for some guidance on regarding a duplex. The top unit is rented, and I am currently moving into the bottom unit. I plan to do a few upgrades (mostly cosmetic) to the unit I'll be moving into, and I also want to finish the basement and add a second bedroom to it as well as a second room that can be used for an office, entertainment room, gaming room, etc.
My question is, since I am living in this unit, should I be saving the receipts for all the things I purchase and the work I have done to this unit, as I plan to rent it out in about two years from now? Or can these items not be deducted since I will have performed the upgrades while living there? Thanks in advance for any advice.
Investor · Panama City, FL · Member since 2015 · 378 posts · 183 votes
10y
When you transfer personal property to investment property it transfers at the lesser of your basis or FMV at time of transfer, you want your basis (cost+improvements) as high as possible because the bigger the basis the bigger the depreciation deduction
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
10y
Whatever renovations or upgrades you do to your residence unit are never deductible. Instead, they are adjustments to your tax basis. There may be some tax credits still available to homeowner who make energy efficient upgrades to their primary residence. Check with your CPA for specific guidance.
I had to reread your post a couple of times, and want to be sure I interpreted it correctly - did you mean that the OP's improvements will end up allowing for larger depreciation deductions once he starts to rent out that unit?
Investor · Panama City, FL · Member since 2015 · 378 posts · 183 votes
10y
@Lydia S. The improvents will allow a bigger deduction but it also depends on FMV on the date it's transfer. If you just buy a rental and fix it up you depreciate it based off your basis (cost+Improvements-land value) but if you use it for personal use first it's the lesser of FMV or basis. IRS doesn't want you to buy a 30,000 car drive it for 10 years now it's only worth 2k and then transfer it to your business and start depreciating at 10k. This is less relevant in real estate since it tends to go up in value.