I'm a new landlord. In Oct we're rented our house. Prior to renting we spent a lot of money fixing up the house in the two months prior to renting. all this work would be consider maintenance; e.g. repairing/painting the the siding, general repairs, pumping the septic tank.
If we were selling, these costs could be added to the basis of the house; but we're renting. So,can these be deducted as maintenance costs even though they occurred in the two months prior to renting?
/dan
It's not clear to me that your claim "If we were selling, these costs could be added to the basis" is true.
However, for a personal residence converted to a rental one position would be to add the cost to basis. See IRS Pub 527, where it states the following:
"Increases to basis. You must increase the basis of any property by the cost of all items properly added to a capital account. These include the following. · The cost of any additions or improvements made before placing your property into service as a rental that have a useful life of more than 1 year."
The question that lingers is the nature of your changes before placed in service - repairs, or improvements? If they did not significantly extend the life of existing assets, but simply brought broken or poorly performing components back into ordinary working condition, then I wouldn't call them improvements.
Simply deciding to call your fixer-upper house (based on your description, no offense intended) a "rental" before it is suitable to be placed in service as a rental, does not necessarily convert non-deductible personal expenses into deductible rental expenses.
Just be sure you don't double-count the expenses by including them both in the FMV of the house at time of conversion and also in the adjusted basis. In other words, if the repairs simply brought the house up to FMV standards of the neighborhood, then that FMV is all you get to depreciate, not FMV+repairs.
I don't think the repair or improvement issue may matter in this instance. Pre-rental expenses are capitalized into the basis of the property. Therefore, as long as one can document that the repairs made to the property were made to make the property available for rent, they can be capitalized. If the taxpayer is living in the property at the time of the repairs, it just makes it more difficult to document intent.
E.g., you decide to relocate and rent your home. You make an offer on a new home and a closing date date is set. A property management company tells you that the place needs to be fixed up before you can make it available to rent. You spend a month fixing it up while still living there. You vacate and immediately make it available for rent. This scenario is pretty easy to document that the repairs were pre-rental expense and can be capitalized. Compare that to a person who makes the same decision to relocate and spends the next 9 months slowly making repairs and then starts looking for a new home. It could be tough documenting that those repairs were not personal expenses.
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