How do I file a 2015 purchase that didn't rent until 2016?

[Laura N.]

Hello everyone!

I'm seeking clarity on a tax dilemma. I bought my first rental property in December 2015. I've been rehabbing since then, and just moved a tenant in last week (April 2016). The question is what to do with the expenses from both 2015 and 2016 that should be added to my basis for depreciation.

Disclaimer: In years past, I've done my own taxes. I wasn't prepared for how complicated it would become with investment property. I will locate a CPA for next year, but for now I think I have to figure this out!

I understand that all repairs and renovations on the house before it is "renter ready" should be added to my basis and depreciated (rather than deducted). Since it wasn't renter ready until April 2016, what do I do with the 2016 expenses that should be added to my basis? Next year, will a CPA add the 2016 expenses to my basis and recalculate the depreciation? Or Is a better course of action just to treat this property as a second home on my 2015 taxes, and then file it as an investment property next tax season? If I do that, will the CPA be able to include my 2015 expenses on the basis? Also, what do I do now with the other business expenses I wouldn't normally be able to deduct on a personal residence (like closing costs?) Will a CPA be able to capture those 2015 expenses in 2016?

Another possibility is calling the "renter ready" date December 31, 2015. That wouldn't be a lie, in retrospect I understand that I could have advertised and shown it much sooner than I did. Since it was my first rental property, I kinda went overboard. The problem is $2k of the rehab expenses were made in 2015. About $5k were made in 2016. It seems like I should be adding that 2016 $5k to my basis rather than deducting it.

Thanks in advance for any insight you can shed on this situation!

Laura