Tax Reporting - Expenses on BRRRR project crossing calendar years

Louisville, KY · Member since 2020 · 3 posts · 1 vote

My husband and I closed on our first investment property at the end of October, 2020. We incurred expenses during the last two months of 2020 as we started the renovations on the property; however, we are just now starting to see income on the property. Since we made no rental income on the property in 2020, do we still report expenses incurred in 2020? Any recommendations based on your own experiences with cross year projects and tax filing?

1 Reply

16 views

4 Replies

Jump to latestLatest

Sort by

Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
5y
Originally posted by @Account Closed:
My husband and I closed on our first investment property at the end of October, 2020. We incurred expenses during the last two months of 2020 as we started the renovations on the property; however, we are just now starting to see income on the property. Since we made no rental income on the property in 2020, do we still report expenses incurred in 2020? Any recommendations based on your own experiences with cross year projects and tax filing?

1) If your property was ready for rental as you were making some repairs in 2020, You can report the expenses and potentially benefit from it. Your rental is considered placed in service in 2020 if your property was ready to be rented and you advertise or looking for tenants.
2) If all the renovation was done to make property ready for rent (Meaning property was not in the condition that it would be rent ready in 2020) and it was never intended to rent in 2020, then most of the expenses are added to the basis of the property and your Property is not considered places in service for you to report the activity in 2020.

[email protected]941-914-7779
INVESTOR FRIENDLY CPA®5241 Reviews
Website View Page
TaxMD® | Tax Planning Software
Website View Page
0 Reply
Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
5y
@Account Closed
Short answer: if your only real estate business was preparing this property for renting, and it was not finished in 2020 - then you do not technically have a business in 2020 and do not report anything on your 2020 tax return.
This answer could change if the rehab of this property was completed in 2020 or if you were pursuing other real estate business, for example wholesaling.
0 Reply
Account Closed
OP
Louisville, KY · Member since 2020 · 3 posts · 1 vote
5y
Thank you!
0 Reply
Account Closed
OP
Louisville, KY · Member since 2020 · 3 posts · 1 vote
5y
Thank you! This is very helpful!
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.