tax write offs for new house not finished/rented?

Question

Newbee, who needs tax advice. I am building a new house (old house which was never finished) with the intention to rent it out for years. I am funding the project with private money until it is complete. When done will get a standard 30 year mortgage with a cash out to pay back what I have put into the project.
From what I think I understand is the costs to build the house I need to deduct over 27.5 years or something like that. So the costs I have spent so far towards building the house are (blueprints, permit fees, septic/well costs, labor/materials). Can I deduct any of these cost when I do my taxes in a month for 2013 or do I have to wait until the house is done and rented? I bought this house 12/28/2012 so I have had the house for almost a year and I have at least 4 months left before it will be completed/rented.

Second question, how about costs I have spent that don’t really have anything to do with building the house (interest paid on private money used to fund project (HELOC on personal home), community just had roads redone so each home owner had to pay $2,000, property taxes (I paid all of 2013 taxes, and had to pay half of 2014 taxes already). Can I deduct these costs on my 2013 taxes?

Third question, When I did my 2012 tax returns I did not consider any of the closing costs I paid when I purchased the property (title search fees, transfer fees, real estate broker fees, etc…). Can I somehow write these off on my 2013 taxes or is it too late?

Final question, I have always done my own taxes because they were pretty simple using turbo tax, but I also never had an investment property. Since I just have this one property going on should I seek a professional CPA, or can this be done simply? If I should get a CPA should I look for one that specializes in real estate?

Thanks

Steven Hamilton II · Answer

@Chris Martin ,

Thanks for the tag.

@Kevin Macdonald ,

You will be able to deduct the property taxes and the interest as investment interest on your return.

Most of those costs will need to be depreciated. Now, since you are building you are in the perfect situation to use Cost Segregation. That means deducting each of the components of the house by their applicable depreciable period.

This means. Driveway other land improvements over 15 years. Cabinets and vanities etc over 5 years. Furnace, water heater, ac each separately over 27.5 years. Flooring over 5 years. etc.

Here is a chart of such items.

Type of Property

General Depreciation System

Computers and their peripheral equipment

5 years

Office machinery, such as: Typewriters Calculators Copiers

5 years

Automobiles

5 years

Light trucks

5 years

Appliances, such as: Stoves Refrigerators

5 years

Carpets

5 years

Furniture used in rental property

5 years

Office furniture and equipment, such as: Desks Files

7 years

Any property that does not have a class life and that has not been designated by law as being in any other class

7 years

Roads

15 years

Shrubbery

15 years

Fences

15 years

Residential rental property (buildings or structures) and structural components such as furnaces, waterpipes, venting, etc.

27.5 years

Additions and improvements, such as a new roof

The same recovery period as that of the property to which the addition or improvement is made, determined as if the property were placed in service at the same time as the addition or improvement.

Property taxes go on Schedule A. Investment interest until it is rented is deducted on Form 4952. The closing costs would not have been deductible unless it was rented in that year.

Steven Hamilton II · Answer

@Kevin Macdonald ,

Enrolled agents (EAs) are America's Tax Experts. EAs are the only federally licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS. - See more at: http://www.naea.org/#sthash.7DLkAqti.dpuf

After it is rented is deducted on Schedule E. That is the form where you will include all of your income and expenses for the property.

Your closing costs will be deducted.... Over 27.5 Years. Your points paid will be amortized over the life of the loan.

Kevin Macdonald · Answer

Steve/Chris, Thank you so much for your post it is very helpful, I do plan to find proffesional help on this.

Steve a couple questions, excuse my ignorance but what is "EA" is is estate accountant?

you mentioned investment interest goes on form 4952 until it is rented. What form would be used once it is rented? My plan is once it is rented is to get a 30 year mortgage so next years interest will be partially on my HELOC, then the rest will be on the 30 year mortgege when I get it.

last question are you saying I cant write off the closing cost at all?

Thanks Kevin

Steven Hamilton II · Answer

@Kevin Macdonald ,

To answer your second question, yes you should find a qualified Enrolled Agent licensed to practice before the IRS to assist you with your tax return.
EAs are required to take CE in taxation whereas most other designations are not. To give you an example, I have many clients that are CPAs.

Chris Martin · Answer

I think you will capitalize all your costs so there are no 'current' expenses that you can write off. @Steven Hamilton II would be a better person to answer, though.

tax write offs for new house not finished/rented?

tax write offs for new house not finished/rented?

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Type of Property	General Depreciation System
Computers and their peripheral equipment	5 years
Office machinery, such as: Typewriters Calculators Copiers	5 years
Automobiles	5 years
Light trucks	5 years
Appliances, such as: Stoves Refrigerators	5 years
Carpets	5 years
Furniture used in rental property	5 years
Office furniture and equipment, such as: Desks Files	7 years
Any property that does not have a class life and that has not been designated by law as being in any other class	7 years
Roads	15 years
Shrubbery	15 years
Fences	15 years
Residential rental property (buildings or structures) and structural components such as furnaces, waterpipes, venting, etc.	27.5 years
Additions and improvements, such as a new roof	The same recovery period as that of the property to which the addition or improvement is made, determined as if the property were placed in service at the same time as the addition or improvement.