When can I begin tracking my expenses for tex deductions?

[Jose Soto]

My wife and I are beginning our real estate investment venture. We're in the process of acquiring our first rental property and we want to take full advantage of deductions related to our business.

Do we need to own the property before we can deduct expenses?

[Logan Allec]

If you haven't yet purchased your first rental property in the geographical area that you're looking into, all of your expenses, from travel to professional fees to real estate books, are considered start-up expenses.

Subject to certain limitations, you can deduct up to $5,000 of these start-up expenses in the year that your property becomes ready and available for rent (i.e., when it is placed in service) but must amortize the rest over 180 months (15 years).

Note that certain costs, such as travel expenses incurred to investigate the property you actually end up purchasing, must be capitalized and added to the cost basis of the property, so there are nuances here.

Also note that costs you incur after you purchase a property but before it is placed in service, such as rehab costs, utilities, insurance, etc., must be capitalized and added to the cost basis of the property.   There are exceptions, however, such as in certain circumstances you may be able to deduct the property taxes on Schedule A (though of course property taxes paid after the property is placed in service is deductible on Schedule E along with your other rental expenses).