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Tax Question – Start Up Expenses and Rental Real Estate
Posted on 12/9/18 at 9:37 pm
Posted on 12/9/18 at 9:37 pm
I’m trying to understand what I can legally deduct for tax purposes related to a rental property purchased this year.
I purchased the property in 2018 and have spent approximately $20,000 between capital expenditures and expenses in order to get it rentable. I would estimate $7,000 in expenses, primarily interest on the mortgage and painting, and the remainder capital expenditures (new flooring, cabinets, counter tops, new fixtures, etc). However, I will not have it rented by December 31st. If the property is not rented in 2018 can I still deduct the $5,000 of start-up costs? Do I have to be marketing the property in order to do this? Or can I deduct the $5,000 even if I have not listed the property for rent yet?
I purchased the property in 2018 and have spent approximately $20,000 between capital expenditures and expenses in order to get it rentable. I would estimate $7,000 in expenses, primarily interest on the mortgage and painting, and the remainder capital expenditures (new flooring, cabinets, counter tops, new fixtures, etc). However, I will not have it rented by December 31st. If the property is not rented in 2018 can I still deduct the $5,000 of start-up costs? Do I have to be marketing the property in order to do this? Or can I deduct the $5,000 even if I have not listed the property for rent yet?
4
Posted on 12/10/18 at 9:34 am to Amory Blaine
I don't really know.
But all tax strategy works, unless you're audited.
But all tax strategy works, unless you're audited.
Posted on 12/10/18 at 9:58 am to Amory Blaine
You'd be crazy to spend $20k here and not see a CPA for $250.
Posted on 12/10/18 at 10:48 am to Amory Blaine
You generally can't take any expenses until it's "placed in service" which roughly means it's available for rent. It doesn't have to be actually rented... but available to do so. You can imagine where some people take liberties with this.
I would do everything I could to meet that standard by 12/31, but if you can't, you would just capitalize all your expenses for now.
When you do actually get it into service in 2019, some of the assets may qualify for bonus / sec 179, and some of them will need to be depreciated over time.
I would definetly consider consulting with a CPA at least for 2018 / 2019. You are new to this, you have weird year end issues, and tax laws have recently changed.
I would do everything I could to meet that standard by 12/31, but if you can't, you would just capitalize all your expenses for now.
When you do actually get it into service in 2019, some of the assets may qualify for bonus / sec 179, and some of them will need to be depreciated over time.
I would definetly consider consulting with a CPA at least for 2018 / 2019. You are new to this, you have weird year end issues, and tax laws have recently changed.
Posted on 12/10/18 at 10:57 pm to Amory Blaine
Probably hindsight at this point, but you want to advertise your rental before you put any money into it. That way, it’s operating expenses instead of CapEx.
ETA: Advertising your rental counts as placing it in service. It has to be legally livable, of course. So this wouldn’t work for gutted homes, for example.
ETA: Advertising your rental counts as placing it in service. It has to be legally livable, of course. So this wouldn’t work for gutted homes, for example.
This post was edited on 12/10/18 at 10:59 pm
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