Cleveland/Akron Area · Member since 2015 · 11 posts · 2 votes
Hi, Forgive me if the answer was posted somewhere else (could not find it). My husband and I own 4 houses, one of which is our primary residence as of Sept 15, 2016. The one we moved out of is being prepared for rental. And the third one is also in rehab. Both of these houses will be rented in the spring. (4th is already rented and not relevant to the discussion). I am trying to decide which of the real estate taxes for the two rental houses in question I should pay before Dec 31. At some point (after the houses are rented in 2017), those taxes will count as expenses for the rentals if I wait until January to pay them. If I pay them this year, can I count them as property tax deductions on my personal income? In essence, I need to decide whether to wait until January, or pay before Dec 31. Please help! Thanks!
hmm; I think that the effective "Date entered into Service" becomes the first date that expenses and taxes can be charged. As the units will not be ready until '17, then there's no benefit this year and you remove them from the '17 tax accounting - - actually going backwards.
I am tracking that the expenses you incur before effectively putting your rental into service (Meaning being able to be rented) gets rolled into your basis, generally. You are able to expense a limited amount of some costs before the property becomes available for service depending on your particular situation. I recommend you speak with you tax professional to stay within bounds of IRS rules.
Yes, Jeff B. thanks. I'm re-reading the IRS tax code now. I think you are right it will only count as an expense, prorated in 2017 during the rental period. But I'm still confused about how to handle the real estate tax allocated to the vacant period between when we purchased or moved out to do the rehab, and when we place it into service. And ah, there is a point on that from Scott. Thanks much to both of you. I think I am on the right track now.
Check with your CPA. I agree that most rental operation expenses incurred before the property is placed in service are capitalized and added to the tax basis. However, property taxes are an ownership expense whether the property is held for investment use or for the production of income. If you itemize deductions, I believe property taxes and mortgage interest can both be deducted on Schedule A as an investment property expense if the property is not in service as a rental, then on Schedule E after the property is in service.