All Forum Posts by: Cathy Chang

@Cathy Chang, as stated, this would be when your house is ready and available for rent.  This would presumably be when you have moved out of the house, the rehab is done, and the house is available for a tenant to use.

@Cathy Chang

I am thinking of turning my current primary residence into another rental when I move. The house needs a driveway very badly. My CPA says it would be better tax wise to replace the driveway AFTER I make it a rental. 

Some good advice on accounting above. Other things to consider may be the ability to renovate while living in the property. A live in rehab, especially adding a bedroom, can be challenging and very stressful.

It would also be worth comparing the projected rent of the 2 bed and 3 bed to the cost of the renovation. Sounds like you may have already don't that but thought it was worth mentioning. Good luck!

@Cathy Chang "If I renovate it now (still primary), may I depreciate the cost?"

No.  Depreciation begins when an asset is placed in service, which in your case would be when your house is ready and available for rent.

When you convert personal property to business property, the depreciable basis on the property is valued at the lower of adjusted basis or fair market value of the property at time of conversion. For example, if you purchased the home for $200k and at the time of conversion, the FMV is $300k, your depreciable basis (excluding land) would be the $200k basis. If you decided to improve the home by renovating $50k, your basis would now be $250k. Had you converted at $200k and add $50k of improvements, your depreciable basis would still be $250k. However, if the FMV is lower than your adjusted basis, it would be best if you waited until after the conversion since you'd get dollar for dollar on your improvements.

Depreciation is a concern but gain on sale will also be something worth planning for. I'd talk to a tax accountant about it.