How soon should I post my property for rent for tax purposes?

Question

***Please move post to the correct section, if this is in the wrong one. I apologize, in advance.***

Hello,

I know there have been other posts about when to post a property for rent, but none address the possible tax advantages. There was a BP podcast that noted the sooner you list, the sooner you can write off expenses. I believe it was the episode with Brandon Hall, I forget the episode number.

Some background before my question. I'm getting ready to move out of my current home and turn it into another rental. It needs some minor work (painting, a couple baseboards need to be replaced, the linoleum in the kitchen needs to be replaced, and I'm going to replace the linoleum in the bathrooms with tile, and replace the carpet in the living room with hardwood laminate).

I'd like to do two things:

1) Get the basement completely finished, so I can have the house reassessed to increase my equity to then take out a HELOC for future investments before I turn it into a rental.

2) Write off as much as possible because I am fixing/finishing things to turn it into a rental.

My question is how soon can I/should I list it to get these items done and write off as much as possible?

Natalie Kolodij · Answer

I agree with @John Woodrich with regard to how far that article pushes things.

It would be a very hard thing to defend in audit- that being said even if it DID qualify it for service the other consideration is that there are still other expense v. capitalize issues to contend with. This includes, but isn't limited to, the $2,500 de minumus amount.

A full basement finish would likely fall under capitalization either way- but you should really walk through the specific situation with your CPA.

John Woodrich · Answer

Under audit the IRS takes the position that the property is placed in service when it is first being rented, not when you list it for rent.

From a practical standpoint you will find yourself pissing into the wind by trying to argue it was placed in service before you completed all of your repairs/improvements.

John Woodrich · Answer

@Dominic Scatto that is odd that they bailed on you...

I didn't mention it in my previous post but I don't agree with the IRS's position that the property is placed in services when it is occupied, I have just seen it come up a few times once for our benefit (bonus depreciation). When I talk to people it is generally after most repairs are made and no later than move in date. Hopefully this period doesn't span a long time.

Dominic Scatto · Answer

@John Woodrich and @Natalie Kolodij Thank you for your input, I really appreciate it. I'm in the process of finding a CPA. I have a couple phone consultations setup now. I've had a couple in the past that fell through. I called in to the number they gave for the consultation and no one ever answered during our scheduled time, and I left a voicemail. I emailed to find out what happened and never heard anything.

@Matthew Paul I put the reason for finishing the basement in my post.

Matthew Paul · Answer

@Dominic Scatto Why would you want to spend the money to finish a basement on a rental ? Basements flood , its not a matter of if it floods its when it floods . Then its more area to maintain after the fact . As far as ROI , on a finished basement , its about 60% of what you spend .

Dominic Scatto · Answer

@Sung Park Yes, that's where I saw it, thank you! I have updated the post to clarify my question.

How soon should I post my property for rent for tax purposes?

How soon should I post my property for rent for tax purposes?

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