Writing off expenses on a property bought in December

[Brady Ascheman]

Hi everyone, my partner and I recently bought a lake cabin in the beginning of December and have started rehab on the property. We have a lot of expenses in December but have not had a guest stay at the cabin yet. Since we have not actually used air bnb yet and had a guest stay our tax advisor is telling us that we cannot write off the expenses because we don't have proof our intent with this property is investment. I am curious if anyone else has some insight on this.

[Linda Weygant]

Hi @Brady Ascheman

There may be a bit of a misunderstanding as to what your CPA is telling you.

The issue here is that for most items, you can't deduct any expenses until the property is ready and available to rent.  Since your rehab is still ongoing, it sounds like the date for when the property meets this criteria is still sometime in the future.  Or at least, is not in 2022.

There are a few small expenses that may be deductible, but by and large, the expenses that you're incurring on the rehab will become part of the depreciated basis of the property.

So your CPA is correct that you can't write off the expenses yet and you may, in fact, end up depreciating them rather than writing them off.  The issue of not proving your intent with the property isn't quite right though, so I'd just clarify that your CPA is truly a real estate specialist or make sure you understand the issues they are communicating.

Best of luck to you!