Renovation Write Off - Not Rented

2 Replies

Listening to the Podcast episode 269 ("How the New Tax Code Affects Your Real Estate Investments") and I think I blew it here.

Bought a duplex for owner occupy, moved in and did some renovation work to the unit that will be the rental.  Did not advertise it.  The reno started in December and I am putting it on the market in a few days.

Knowing I didn't put it on the market to claim "operating expenses", since some work started in December - is that amount of contractor payments and purchases out for claiming in 2017?

Additionally, are my Jan - March 2018 expenses also out for claiming in 2018 due to their dates, or will I still be able to claim based on the tax year 2018?

You did not blow it, @David Santore .

Your renovation costs would not be deductible in 2017 or in 2018. Instead, they are added to the purchase cost and depreciated, starting from the date the unit is "in service" - which is now.

Example: the cost of the duplex is $200,000 and renovations to the second unit are $20,000.

$100,000 is the personal unit. $100,000 is the rental unit. $100k + $20k = $120k. You start depreciating $120k next week.

Disclaimer: my example does not consider a few important issues, like closing and holding costs, financing, land allocation, etc.

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