Rental Property

[Ashleej828]

Hello,

I have seen a couple of posts similar to my situation but since this is my first rental property, I want to be sure I’m understanding since I’m aware that things can get messy if taxes aren’t done correctly the first year. 

I have a property that I bought in September 2022. Renovations started almost immediately, but didn’t finish until 2023. I put my first ad up for rent in March 2023. In 2022 I hired a construction company to do the renovation project, but I personally bought some stuff for the condo such as appliances, light fixtures, door handles, sink faucets etc. These items are where things get confusing for me as I’m not sure how or where to add them into taxes. I understand that I need to add the property to sched. E for 2023, but I’m not sure where to add those expenses incurred during 2022? Are those treated as renovation costs and added to cost basis for 2023, or should it be added another way? I am a little confused on what types of items qualify for cost basis for 2023 since I continued to buy items for the condo into 2023 as some of those items are also fixtures that will stay with the condo if/when I sell. 

For extra transparency, this is a “mid-term” rental that I fully furnished and bought all furniture items (beds, couch, tvs, rug, linens, etc) in 2023. That’s where some of my confusion comes from since I believe most of those items are expenses and anything “fixed” to the condo would be seen as assets and would need to be depreciated with the condo over 27.5 years? TIA! 

[Mike9241]

renovations are capital expenditures which means they need to be deprecited over the life of the asset. generally this would be the same as rental realestate 27.5 years but shioould be listed separtely to the extent possibe becuse that way should you remove them any undeprecited balance can be expensed.  as to items you purchased separtely. deprecition srtrs 3/2023 when you put that ad out for rental

adding assets is done through the asset entry worksheets. 

for the building, the cost of te land must be segregated becuase it's not depreciable.

see this thred by Champ @Carl 

also note that state laws may also dictate what is part of the permanent real estate and what is personal property.  for example in my satte. a lamp that plugs into an outlet is personal property. a light fixture that is hard wired into the property's electrical system is real property. throw rugs are persoanl property tack down carpeting is real property. Most furniture would be personal property

https://ttlc.intuit.com/community/taxes/discussion/can-i-deduct-expenses-of-renovations-and-maintena... 

also note ther is a deminimus safe harbor elctionf for rental real estate

see this link

https://www.azibo.com/blog/de-minimis-safe-harbor-in-real-estate 

[Ajurad028]

Thank you for your reply!

I think I understand much better now. So, since I will need to add the renovation costs to the Asset section, which sub category will it fall under once I click on the Asset link? None of them mention anything about renovation costs specifically. Also, when I do that, do I need to itemize each renovation cost or would I just put in the total cost of the renovation project?

I'm in Nevada and it looks like real property vs. personal property are defined similarly to how your state defines them, so any fixtures that I bought that will be staying with the property (door handles, light fixtures, sink faucets etc should be added as assets and depreciated correct?... Thank you!

[JotikaT2]

Where you classify the renovation costs will depend upon the specific type of improvement.  IRS Publication 946 breaks down the asset classification and depreciation life in more detail. For example, a roof will have a longer life than a light fixture.  I suggest referring to the following links for more guidance to help direct you based upon the type of improvements made.

How do I handle capital improvements and depreciation for my rental?

Rental Real Estate and Taxes

If you have the breakdown of each specific asset, it would be better as rental properties do have wear and tear.  If you have to replace a light fixture, for example, it would make it easier to remove that asset from your books and add the new light fixture when the time comes to make that change.

@Ajurad028