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MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2342
Experience:  CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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I have had a rental unit for 15 yrs. In June 2010 I moved out

Resolved Question:

I have had a rental unit for 15 yrs. In June 2010 I moved out of my primary residence to a nearby city. The Primary residence has been fixed up with about $25,000 spent. I am hopefully going to have it rented for the last two weeks of 2010.

This is my tax question about the cost of the expenses of the improvements:
Will I report on my tax return that I spent $25,000 and received 1/2 a month rental income?

Side question:
Is the answer the same if I get no rental income in 2010?
Submitted: 6 years ago.
Category: Tax
Expert:  MequonCPA replied 6 years ago.
Hi Customer -

The answer may be the same in both cases.

First, it is likely that some or all of your expenditures will need to be depreciated versus expensed. Improvements must be capitalized and depreciated over 27.5 years while basic repairs can be expensed (remodeling a bathroom must be capitalized vs replacing a faucet can be expensed).

Once you've allocated the expenditures, the question is when was the property be "placed in service". If it was available for rent in December, you can expense/deprecate beginning in December, otherwise you need to wait until the property is ready for tenants.
Customer: replied 6 years ago.
I should have stated it like this.

If the expense/capital improvement was "placed in service" in December of 2010, then am I allowed to do the depreciating, or expensing on my 2010 tax year? Or do I have to wait until 2011. Or, if I must wait til 2011, can I use expenses from 2010?

The house was placed in service Nov 20, 2010, but my only evidence of that is a Craigslist posting. Finding the right tenants is taking longer than I had hoped . I would feel more comfortable taxwise having a check and receipt to back me up. I have lots of e-mail corespondence to the effect. Is that enough? I don't want to rush the selection process, But I don't want to wait a long time or maybe even lose the option to lower my tax load.

the work was
Electrical 14,000
Painting 7,000
New Window 1,850
Repair brick paving 600
and a lot of minor stuff ~500

Can I just go ahead with a second form 4562 when I do my taxes for 2010?
Expert:  MequonCPA replied 6 years ago.

Has everything been e-mail? Do you have rental applications? Run credit reports. Have a record of showings. Newspaper ads. The more support the better in whatever form. Craigslist is good, but it isn't necessarily the only/best method. The key is can you justify that with the right tenant you were ready and WILLING to rent.


Regarding the expenditures, electical and window appear to be capital expenditures. Brick work and "minor stuff" expenses. Painting, depends on why. Probably expense unless it was to complete a remodeling/construction project.


Customer: replied 6 years ago.
Thank you Steve. you have given me a lot of good advise about which things go in which bucket and I needed that info. It helps a lot for sure.

The electrical work was so extensive that the entire inside needed to have multiple trenches in the walls patched and painted.

My main question though, is which tax return to report things in. Which year is the real question, 2010 or 2011. If it doesn't matter then I was just asking a trivila question, but I still want to know, can I start with 2010 tax year if it was palced in service in 2010? Or can I NOT report this activity in 2010?

My main concern lies in the fear that my spending activities might be in danger of getting severed from my enterprise activities. Do tax laws treat fixing a house you live in differently from fixing a house you rent to another person?

Am I just making a mistake asking this because everyone else already knows?
Customer: replied 6 years ago.
I have numerous rental applications signed and dated by the applicants. I have offered 3 times to rent it to applicants and I lost 3 in a row. I have 3 more at this moment all waiting for me to say yes. This does not include several I do not intend to offer it to. In the event none actually sign a rental contract during 2010, will the applications be enough to prove placing in service. Tomorrow I am going to offer it to my first choice then second and so on. If they all say no and it continues like this till the first of Jan 2011 have I placed thi unit in service?

That is my question.
Sorry it took me so long to state it more clearly,
Thank you,
Expert:  MequonCPA replied 6 years ago.

Hi Richard -


Based on your replies, the property was placed in service in 2010.


If you make improvements to a personal residence, the improvements are capitalized, but not depreciated (your basis increases). If rented, the improvements can be depreciated. (In this scenario, a portion of the cost of painting may be related to the electrical upgrade)


As a comment, you can also depreciate the building. Your basis for depreciation is the LESSER of your original cost plus prior improvements or current fair market value. Your basis must be allocated between land and building.

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