Expenses from 2016 on 2017 return

[Michael Chavarria]

Hi, 

I realize that I need to speak to a CPA but I am trying to figure out as much as possible before I do so. Any help is appreciated.  

In 2016 I started a single member LLC. I purchased a property in June but it wasn't rented out until 2017. My CPA who did my taxes last year said that all expenses should be capitalized in 2017 once the house is rented. My understanding of this was limited at the time (and I am still learning) so I just went with whatever he said. My understanding is that he is correct on this matter.

I have been going through last years return trying to understand it and I realize that there was no return at all filed for any business activity. I had expenses that I do not believe should be capitalized with that property such as mileage, shipping costs, purchases of tools, meals. There were two inspections on houses that I did not end up purchasing in addition to a lost 500$ EMD deposit that HUD wouldn't return. There were also legal fees associated with starting the business.

The total for tools was around 1000$.  They are all small tools that I believe can be expensed.  There are also utilities and insurance which I believe fall into the total that will be depreciated over 27.5 years on the house. 

My question is, since these expenses were in 2016, but no return was filed for business activity, can they be expensed in 2017?  If not will they have to be included in the depreciation schedule of the house?  Did my CPA mess up by not doing this last year?  

I want to do everything correctly and make sure I can take the max amount of deductions I am entitled to so I want to learn exactly how this works because after 2 houses I've learned that there are many professionals out there who are either lazy or do not know any better.  

Thanks in advance. 

Mike C

[Basit Siddiqi]

@Michael Chavarria

Creating an LLC does not allow you to expense items earlier than if you didn't create a business entity.

It does not appear from your story that you had a business in 2016.

Expenses/costs spent in 2016 will fall into one of 2 categories. 
1) Added to the cost of business and depreciated over the useful life
2) Start up cost - you can potentially write off $5,000 in the first year of activity with the remaining balance being amortized.

Legal fees associated with starting a business, LLC costs are some items that you can potentially expense in 2017.