New BARRRR Article Question

[Daniel Y.]

The recent article regarding BARRRR is very interesting written by Brandon Hall. One question I had in mind if anyone could answer is what would be considered as "In-service" for 2-4 units. If I had a duplex and one unit was occupied, and I was fixing up the other vacant unit. Would the whole property be considered as "In service" so I could write off most of the updates in the vacant unit as "operational cost" instead of depreciating it? Or would the IRS try to separate it, saying that the vacant unit was not advertised, and therefore is not in service?

[Brandon Hall]

Hi Daniel - glad you enjoyed!

For a duplex, the majority of the repairs you make will be capital expenditures (added to the basis of the property) and will be depreciated, liked over a 27.5 year period. This is true regardless of the date you advertise the property for rent. However, you should advertise the property for rent early on (or midway through) the rehab in order to provide your tax pro with the potential flexibility to deduct some of the costs incurred. 

As always, don't implement this without the support of a tax pro or you're asking for trouble.