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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 14063
Experience:  15years with H & R Block. Divisional leader, Instructor
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We purchased a home in March of 2016 that prior to sale we

Customer Question

quot;We purchased a home in March of 2016 that prior to sale we had legally re-classified as a 2-family (it had been a single family for 200 year prior to that). We spent more than $50K in 2016 on improvements to the 2nd floor so that we can rent it out to my mother in law starting in 2017. Can we deduct these expenses? It seems to me they are improvements to a rental that was not yet occupied. Does it matter if my sister in law was living in the unit and paying us a moderate rent as well as providing child-care (she was paid in room and board)?"
Submitted: 1 month ago.
Category: Tax
Expert:  Robin D. replied 1 month ago.

Hello, I'm Robin. Welcome to JustAnswer. I'm reviewing your question now and typing up my reply. I'll post that in just a few moments.

Expert:  Robin D. replied 1 month ago.

The expense to improve is added to your cost for the property and will increase the depreciation.

Depreciation is started when the unit is available for rent. Although you cannot deduct them for 2016 it will increase your deduction for depreciation in 2017 when the rental is realized.

Your sister-in-law's use of the unit in exchange for childcare would not change the time or method.

Customer: replied 1 month ago.
Couldn't we say that she was renting it from us? I don't feel like that would be a lie. Her rent was paid in child care, which is worth about $2000 a month to us -- or what we will be charging for the rental.
Expert:  Robin D. replied 1 month ago.

If you were paying her as a household employee then you would need to report that (Schedule H) and pay your share of employer taxes on that.

Her staying there in exchange for a service is not rental to you but taxable income to her and further expense in employment taxes to her.

https://www.ssa.gov/pubs/EN-05-10021.pdf

Expert:  Robin D. replied 1 month ago.

Please let me know if you need clarification. If you do not then a positive 5 star rating is appreciated so I get credit for the response. (look for the STARS or SMILEY FACES)

Expert:  Robin D. replied 1 month ago.

Are you still in the conversation?

Expert:  Robin D. replied 27 days ago.

I am checking back to see if you posted again or needed more information