Tax question: Incur rehab costs before or after Jan 1st?

[Julie Halloran]

I'm currently undergoing a renovation on a 2-family I purchased a couple of weeks ago. I anticipate the renovation to last past the new year, and will include items like painting, refinishing floors, new kitchens and baths. What type of items/work (if any) can I deduct from my taxes, and considering I won't have rental income until after January 1st, is it better to defer more of these costs into the new year?

Thanks!

Julie

[Linda Weygant]

In general, tax law states that you don't deduct *any* remodel expenses until the property is put into service.  At that point, you accumulate those expenses and add them to the basis.  You then depreciate it all over the next 27.5 years (along with the purchase basis).