How to account for construction expense of converting garage to guest house/rental property?

[mkedikian]

Client is converting garage into a guest house and maybe will turn it into rental property.  spent already about $50K in 2018.  project not completed. no income yet. how and  where do i account the $50K expense?

[TaxGuyBill · Accepted solution]

Nowhere.

If and when it is used for a rental, then that will be added to the Basis for depreciation.  Until then, the amount spent on it does not go on a tax return (it is possible the interest on any loans may be deductible, depending on the circumstances).