Deductions on Improvements Before Officially Renting

[Mark Rhea]

We moved out of our primary residence in Tennessee and relocated to South Carolina in July of 2016. We have spent about 7 months getting the home ready to become our first rental property. It has taken that long due to being 2.5 hours away and trying to do the work ourselves (big mistake).

We spent money on flooring, paint and such. Here goes the question...Is the money spent to improve the home deductible even though it hasn't become an official rental yet. I know this is probably a simple and silly question. I have always done my taxes myself but I am afraid I am in way over my head.

Mark Rhea, Spartanburg

[Scott Davidson]

The improvements are not currently deductible. They are added to the basis of the property and depreciated. 

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

"The basis of property used in a rental activity is generally its adjusted basis when you place it in service in that activity. This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in service in the rental activity."

"If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its fair market value when you change it to rental use."

https://www.irs.gov/publications/p527/ch04.html#en...

"Figuring the basis. The basis for depreciation is the lesser of:

• The fair market value of the property on the date you changed it to rental use, or
• Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis."