Deduct or Capitalize - Placed in Service Exception

[Shea Spinelli]

Hey BP Members, quick question. We purchased 12 units in July 2017. In November 2017 we added an additional unit. Wouldn't we qualify for the exception  @Brandon Hall discussed as Myth #5 in his article '7 Common Myths About Rental Property Taxation-Dispelled?

Brandon wrote:

"You cannot deduct any costs incurred on your rental property until you place the property into service. Without placing the property into service, we are forced to capitalize costs and depreciate, generally over 27.5 years. Placing the property into service means advertising the property for rent.

The one exception to this rule is if you already own rentals in the same geographic location as the new rental you are rehabbing. You are then considered to already be operating in that general location, and thus you have flexibility in deducting your rehab costs rather than capitalizing without having to advertise the new property first."

My question is, where is this in the IRS tax code? I have searched and cannot find it. I would like to provide this to my accountant as he is capitalizing my expenses prior to our new unit being placed in service, but according to the article, we meet the criteria for the exception.

Thanks in advance for all the help - great read, by the way. Brandon provides some good information!

Shea Spinelli

7 Common Myths About Rental Property Taxation—Dispelled

[Michael Plaks]

@Shea Spinelli

Like @Linda Weygant said - @Brandon Hall's statement is too short and requires clarifications. It cannot be interpreted as "now I can deduct everything." It's not what Brandon meant.

I'm one of those accountants who agree with @Ashish Acharya interpretation: de minimis does apply to new properties. What also applies is the new 100% bonus depreciation, since you did it in November. My statement, just like Brandon's, also requires several clarifications, which is up to your CPA.

Good luck with your new investment.