All Forum Posts by: Matt Galbraith

The IRS defines this based on when the house was placed in service as a rental. That is not the day you buy a new primary residence. It is the day your old property is ready to rent and being advertised as a rental. My interpretation from reading IRS documents on this is that you can only start depreciating the home and declaring expenses when the house is rent ready. That would generally mean after updates are completed and you place the property for rent. Here is a specific example the IRS gives that I copied and pasted from an IRS website publication: 

"On April 6, you purchased a house to use as residential rental property. You made extensive repairs to the house and had it ready for rent on July 5. You began to advertise the house for rent in July and actually rented it beginning September 1. The house is considered placed in service in July when it was ready and available for rent. You can begin to depreciate the house in July."

What you will need to do is talk to an accountant. Depreciation and capturing expenses will begin on the day the house is ready to rent. They will work with you to establish a depreciation value. The depreciation value is not what you paid for the house. There are a couple methods to establish current depreciation value and let your accountant decide what is best. 

I am not sure I would worry about claiming the improvement expenses. Any major improvement expense would be depreciated. Since you are establishing your depreciation value after improvements, your improvements will increase value and therefore increase the amount you can depreciate. I guess the point is you cannot double dip. For example if you put the house in service as a rental March 1, then spend $10,000 replacing flooring in April, you would depreciate the flooring expense. If you spend $10,000 on flooring in March and then put the property in service as a rental in April, your depreciation value will most likely be $10,000 higher to account for the improvements. In either example you get benefit from the improvements. Technically you are not supposed to put the property in service until the updates are ready. Basically this means the day you start advertising it for rent is the day it is put in service. 

Some accountants may claim your property went in service before the updates, but I would be careful because the IRS is pretty specific on this. Would you get audited and caught, probably not.

https://www.irs.gov/publications/p527/ch02.html#en...

Please talk to an accountant. I am not one, so my input here is just based on my lay understanding.