Rental Real Estate basis and depreciation

[Havinfunone]

I have a client that bought a piece of property in 2023, had to put in a well and septic system and then put a prefab house on it all with the intention of renting it. He completed it in December of ‘23 but didn’t rent it until January. There would be no claim for ‘23 but would you combine all of the expense to prepare the house into one basis for depreciation or break it down by component for the ‘24 return?

[BobKamman]

Was it available and offered for rent by December?  But in any case, the total investment would be used as of the date depreciation starts.  

[IRonMaN]

How long is the client going to keep it?  By depreciating things by components, you have something to remove from your depreciation schedule when they put in a new well or new septic system somewhere down the road.  But the flip side is, when it is ultimately sold, showing it all as one cost makes it easier to report the sale.  There is no right or wrong answer, it boils down to your personal preference.

[Terry53029]

I agree with @IRonMaN, but property taxes, and mortgage interest if any would be separate. See link:

https://www.law.cornell.edu/cfr/text/26/1.266-1

[TaxGuyBill]

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@Havinfunone wrote:

had to put in a well and septic system

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I would first research to see if either or both of those would qualify as a 15 year land improvement.