Rental Startup Deduction?

[AstroEng]

Hello,

I've been reading about startup deductions for rental properties. I get (so far) the applicability for buying a new property and fixing it up before you rent it out. However, what is not clear to me is this: can you claim the costs fixing up your home immediately before you move out and start renting it? I can't find anything saying whether or not owner-occupied to rental costs are allowable. I'm guessing not, but I'd hate to miss out if you can. This will be our first rental property.

Thanks for your help!

[tonysemail]

I read nolo book on this recently and IIRC, you would have to add the repairs to your cost basis and depreciate them.
That's unfortunate since you probably want the deduction as an expense.
The nolo recommendation was to defer small repairs where possible until AFTER the tenant moves in.
Once the unit is rented out, you can deduct them as repairs instead of depreciating it as a capital asset.

[bacchi]

Pre-rental expenses.   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent.

https://www.irs.gov/publications/p527/ch01.html#en_US_2015_publink1000218979

The question then becomes: Is it better to vacate and then fix it or is it better to fix it before? That depends on the cost and time and type of improvements.

For a lot of large expenses (i.e., capital expenses), you can replace it now and depreciate it -- the question becomes moot since the depreciation time starts near the purchase time.

If it's a non-capital expense, it might be better to make it available first. Put it on craigslist and then fix the nail holes in the walls and throw down some mulch in the front yard.

[Drifterrider]

Hello,

I've been reading about startup deductions for rental properties. I get (so far) the applicability for buying a new property and fixing it up before you rent it out. However, what is not clear to me is this: can you claim the costs fixing up your home immediately before you move out and start renting it? I can't find anything saying whether or not owner-occupied to rental costs are allowable. I'm guessing not, but I'd hate to miss out if you can. This will be our first rental property.

Thanks for your help!

No.  Repairs to your resident are not deductible.  Improvements made to a property prior to letting the property are usually considered capitol improvements.  If you make improvements to your house before you move, you may be able to adjust the cost basis upwards.

Remember, as long as you occupy the house, it isn't a rental.  Once you leave and make it available to rent, the cost are improvements.  Once it is rented, some of the cost can be repairs.

What repairs/improvements do you want to make? 

[Goldielocks]

In Canada, the costs to fix up an investment property for rental are capitalized, as is the carrying costs prior to first rental.

But, you can't be living there.   Usually the US has the same GAP rules.

[AstroEng]

Oh well. I guessed as much anyway.

Thanks all for your help!

[AstroEng]

What repairs/improvements do you want to make?

We've replaced old faucets/drains/pipes in the baths. Replaced vanities. A lot of painting. A little landscaping. Just a lot of other small, but quickly adds up, touch up work.

[dpfromva]

For US readers, here is some pretty clear and plain English guidance from the IRS on what you can expense and what you capitalize (resulting in depreciation expense) and when you can take an expense deduction for various rental situations:

https://www.irs.gov/publications/p527/ch01.html