Tax Strategy Guidance For Rentals

[Rick Turman]

I have combed a few forums but have not found a variant for my questions that I am needing help with.  

I own two duplexes that were purchased in 2019; one in my personal name and one in the business.  Both were in service at the time and being rented.  Construction started on the one in the business within a week of closing while the other has some minor repairs.

Are all fees and taxes associated with the purchase of the property deductible that can be found on the Closing statement? The one in the business name has a Construction loan out on it which I assume I can write off the Interest paid up until 12/31/2019. How would I account for CAPEX and expenses on this property until EOY? I have about 16K in Materials and Labor costs to this point. Would I Safe Harbor those costs under 2500 or should I depreciate the costs involved on a schedule? I have read that I can depreciate the value of the home over 27.5 years which I want to do but at what point do you do this in this scenario? I'm assuming when renovations are completed and Refi is performed, that's the year you depreciate the new Value of the home over 27.5 years correct?

I'm sorry for all the questions, and i've come this far.  My CPA passed away right at the start of COVID and I have been scrambling to find a new one to work with.  I appreciate everyones feedback and looking forward to your responses.

[Dave Toelkes]

If you are planning to hold these properties as rentals

Capex and renovation costs are capitalized (added to your cost basis) then recovered through depreciation. You depreciate your actual costs, not the new value. the value of the land is never depreciated. For this major renovation project, IMO, the project cost is a renovation that would be capitalized. You can expense property taxes and loan interest on your Schedule E. If this property is owned by your flipping business, I would transfer it to a new buniness entity that you set up for the rentals you will hold. Get a new CPA on this right away. You don't want to conduct rental activities under your flipping business umbrella.

If you are planning to rehab then flip these properties,

All of your costs are accrued as cost of goods sold and recognized in the year of sale.  None of your direct property costs are expensed, everything is included in the tax basis when the property is sold.