I am looking to renovate my home, and relocate to short-term rental
(3-4 months) durng the process. Can the rental cost be considered as
part of home improvement cost and added to the cost basis?
========================================= MODERATOR'S COMMENT:
- nice try, no.
No. The rental activity is shown on Schedule E (revenues and
expenses). If there's a rental gain, you pay taxes on it. If there's a
loss, maybe you can deduct all or some of it depending on your income
from other sources.
He has NO entries for Schedule E. He is a homeowner
who is becoming a renter. He is going to capitalize
the renovation expenses of his residence into his
cost basis of his home. During the renovation, he
will be living in an apartment, townhouse, condo,
etc. and wants to know if he can capitalize the rent
he will pay into the cost basis of his home.
His question is reasonable given the renovation is so
extensive that he must evacuate his home and the his
3 month rental is substantial.
I looked this up before the '86 Tax Act for a close
friend of mine. He was have a complete rehab of his
house in preparation for selling it. It was not
possible then, so I doubt it is possible now.
I think there was a misunderstanding on who is renting what.
To the OP, not only is the cost of the personal rental not added to the
basis of the house, but if you borrowed money to pay for the renovation
and are using part of the loan proceeds to also pay the short-term
rental, that part is equity debt, not acquisition debt, so future
deductions of the mortgage interest may be limited by the usual rules
for equity vs. acquisition debt.