Advertising for rent during renovations for tax deduction purpose

Rental Property Investor · Member since 2018 · 20 posts · 5 votes

I once read an article here recommending to advertise your property for rent prior/during renovation in order to be able to deduct those expenses during that same tax year. I cannot find it. Can someone please refresh my mind. It was adding the A for advertising to the BRRR (BARRR)

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Natalie KolodijBusiness Member

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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes

The CPA who wrote that article since admitted in the comments that he had mis interpreted the Internal revenue code related to it.

Costs to get an asset ready for it's intended use are added to the value of the asset and capitalized (We can ptoentially separate out some items, that's a more specific different topic)

That article basically said HEY advertise it and put in service early then you can fall to the tangible property regulations (The rules we follow about capitalize/expense on rentals once they're "in serivce".

A. No - advertising a property alone does not make it "in service"

B. If your major renovations are mostly done, and you've got your certificate of occupancy, and you're doing final small repairs now (paint, lights witches, ect) the time when you COULD take photos, list the property and walk people thorugh it and it's within a normal leasing timeline (4-8 weeks) Then advertising it helps solidify a date for treatment of those repairs.

But in short- you can't just advertise a property and automatically deduct a renovation.

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Will HildrethPro Member
Investor · Des Moines, IA · Member since 2017 · 7 posts · 4 votes
6y
I've heard that also and am in a project where I'm executing that strategy but it's not complete yet. It has to do with being able to point to a date that a rental was in need of repairs vs rehab which are treated differently for tax purposes. I'm not a CPA but I believe a repair has a lower threshold to deduct the entire cost in the same tax year versus depreciating the rehab in it's entirety in a single year. That's the gist of it. I don't think there was any other reason for it and I'm uncertain where I heard it but the message stuck with me. I believe I heard about it in a podcast, just unsure which one. I'm sure a CPA could give the detail behind this strategy.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
6y
The CPA who wrote that article since admitted in the comments that he had mis interpreted the Internal revenue code related to it.

Costs to get an asset ready for it's intended use are added to the value of the asset and capitalized (We can ptoentially separate out some items, that's a more specific different topic)

That article basically said HEY advertise it and put in service early then you can fall to the tangible property regulations (The rules we follow about capitalize/expense on rentals once they're "in serivce".

A. No - advertising a property alone does not make it "in service"

B. If your major renovations are mostly done, and you've got your certificate of occupancy, and you're doing final small repairs now (paint, lights witches, ect) the time when you COULD take photos, list the property and walk people thorugh it and it's within a normal leasing timeline (4-8 weeks) Then advertising it helps solidify a date for treatment of those repairs.

But in short- you can't just advertise a property and automatically deduct a renovation.
Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
Kolodij Tax & Consulting
Website View Page
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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
6y
Natalie is exactly right. The CPA who advised that is extremely incorrect and you're begging for an audit of you do that.
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Claudia Becerra
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Rental Property Investor · Member since 2018 · 20 posts · 5 votes
6y
Thank you so much you guys ! I really really appreciate it!
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Jeff Hug
St Peters, MO · Member since 2017 · 9 posts · 8 votes
4y
I was looking for that article too (I actually heard it on a different podcast with the same acronym). Thanks for the detailed response and clarification @Natalie Kolodij
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