Rental renovations

[CatherineF]

I have a client that has a rental - spent all of 2021 doing major renovations with no rental income.  Can I depreciate the renovations and take the operating expenses.  On the renovations can I divide them up for lesser depreciable years. i.e. carpets, appliances etc... as lesser depreciable years.

[dkh]

Depreciation starts when property is available to rent which sounds like will be 2022.   Yes you can divide up costs for depreciating such as the appliances.     Don't know about that carpet though.

What operating costs ?  

[Skylane]

When entering asset in PS, if you click on the ? (Help) When you have the curser on the depreciation type field, it will open a help page with types of assets and the appropriate depreciation category

[dascpa]

The available to rent is a concept that has been disputed in tax court many times.  When one tenant leaves and repairs and renovations are done before the next tenant moves in is the property still available for rent during that period or do we stop the depreciation for a month or two (example timeframe)?  The courts have consistently said it still was a rental property and the repairs and renovations were done in the ordinary course of business.  I remember one factor the courts said was that the landlord had an ad in the paper that the property was available to rent, just not until a date certain.

Here the issue is it was not available for the entire year, not that it wasn't rented during the year.  There is no issue with the latter statement.  I'd be curious how this would be treated.  Clearly though the assets cannot be depreciated until placed into service.

[dascpa]

If at first you don’t succeed…..find a workaround

    I used to have a sign on my desk -  If at first you don't succeed, screw it.

[BobKamman]

@dascpa   "The available to rent is a concept that has been disputed in tax court many times."

The “search for phrase” function is back at the Tax Court website now, you know. I did a search for “available to rent” and found just one precedential opinion.  But it didn’t involve rental income (it involved a medical marijuana clinic for which the petitioner had found a place that was available to rent).

That left three memorandum opinions and three summary opinions (two of which involved the same owners). I looked at the most recent for both.

In a 2015 memorandum opinion, T.C. Memo. 2015-95 (Redisch), the question was whether a personal-use condo in Florida was ever converted to a rental. There was not much evidence of a real attempt, and the court ruled for IRS.

A 2013 summary opinion, 3058-12S (Jordan), involved a property that had been purchased in 2008 but not rented until 2009. There was no question of delays from repairs and improvements. The petitioners claimed they were advertising its availability by “word of mouth.”

There may be some District Court cases out there involving this issue, but I doubt it. Your claim that this concept has been “disputed in tax court many times” is, frankly, just blowing hot air. There may be other cases involving business start-up dates (not rentals), but that’s not what you said.  

And the Tax Court search feature goes back only to 1986.  So if you have one of those cases from 1948 that still get mentioned in CCH or Prentice-Hall, please share it.  Or maybe you just know about a lot of cases being settled with IRS before trial.  

[dascpa]

Thank you for the personal attack.

In my early days I worked for Grant Thornton, formerly Alexander Grant (1982-1986).  We had a tax court case on this very subject.  When the partner went to court he had a load of prior cases on the subject which is where the concept of it being available to rent based on the advertisement was reported.  I don't remember the citations nor do I need to.