We have recently renovated our basement (legal secondary unit/apartment), and the constructions work completed this year (2024). We couldn't rent out the place yet, so there is no rental income for 2024.
Since we spent a significant amount of money this year, we are wondering how to reduce our tax bill for FY 2024. Can we show some portion of renovation cost as rental expense against '0' rental income? OR we have to show full renovation cost as capital expense (for instance: $50K) and then depreciate ($5K) over the next 5-7 years. In this case, we have to pay capital gain tax when selling our home/principle residence, if so when which amount we have to pay that tax? Can someone please provide some insights on this? Thanks!
It must be reported as a capital expense and depreciated annually. That portion of your home would be treated as a revenue property once you acquire paying tenants. On the sale of the home, capital gains may be payable, based on the calculation of market value or actual sale value of the home, less repair and maintenance, real estate fees and any other expenses. Be aware there may be a recapture of depreciation after a sale.
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