Condemned purchase in 2017 tax questions

[Brandon Pierce]

I purchased a home from the city for 3k last year (nooby mistake as it was the only house on the list I didn't go look at personally) but I figured the land was worth that! house was condemned and needs a complete overhaul. I'm almost done with the tear out and some of the reconstruction has been started but my question is since it was a cash purchase and liens and taxes have been paid along with expenses such as trash containment, permits, ect... can I deduct that from my taxes. ( I currently have my primary house, 1 rental, and now this property. It was not rented at all and I'm considering flipping it once finished but that is not set in stone as it will be a completely renovated house for less than 40k so the prospect of having a completely redone rental that I can get paid off in 2.5 years is enticing) I currently use turbo tax premium since I'm limited on properties but was curious as to where/how (if possible) do I classify it in order to take advantage of any deductions I can claim on it? Thanks in advance for any responses!!!

[Dave Toelkes]

To deduct rental expenses, your property must be READY and AVAILABLE for rent and placed in service as a rental.  Since you have a condemned property, you must complete all the necessary work to make the property habitable then get your certificate of occupancy from the county building inspector.  Once all that is done, you can put your property into service.  After your property is in service, repairs can be deducted on your Schedule E.  As a general rule, improvements are still capitalized and depreciated.

But, if the properry is going to be a flip, all direct costs for the property are added to basis and are included in the Cost of Goods Sold on your tax return for the year of the sale.  None of the property repairs and renovations can be expensed for a flip.