You can still deduct expenses and claim depreciation without the LLC.

So, don't expect to be able to do a cost seg study on the property and take a big bonus depreciation deduction, unless the new property has significantly higher value than the exchanged property.  

My question is, are add-ons considered capital expenditures, making them deductible?  

Hi there,Given the complexity of your situation—owning a rental property in Florida while residing in Illinois, house hacking with your daughter, and planning to claim tax breaks—it might be a good idea to consult with a Certified Public Accountant (CPA) or an Enrolled Agent (EA) who specializes in real estate taxation.While your current tax professional at HR Block has experience with multiple properties, a specialist can offer more in-depth knowledge on multi-state tax issues, rental income reporting, depreciation, and maximizing deductions specific to real estate investments.

I’m thinking this could help us with tax deductions, especially if we operate at a loss.Does anyone have experience with a situation like this?

Well now year 1 has an extra deduction of $800 ($2,000 total) causing tax to go down that year.

It’s not absolutely necessary to hire a CPA with just two rental properties, but it can be really helpful, especially when you’re new to the tax benefits and deductions available.

McElhannon: Wouldn't all the other 17 years of expenses (taxes, maintenance, fees, etc)  also be deducted from the price and not just depreciation? 

By forming a property management company, you could deduct business expenses like office supplies, software, and possibly a home office, which you wouldn’t otherwise be able to claim.

If you sell houses to buy a primary residence you will pay tax on the profit, PLUS recapture the depreciation deductions you will be taking on your taxes each year.