Rental expense

[Kea]

Homeowner is planning to retire next summer and rent out house. They have recently found a small crack in the foundation. How close to the house becoming a rental do they have to wait to make it a deductible rental expense vs a non-deductible homeowner expense? Or, since the crack is already there, there's no way to make it a rental expense? If they were staying in the house they would probably not do the repair unless the damage gets worse. They are now doing what they can to keep the crack from growing / getting worse.

(They do realize they may lose the $500K cg exemption depending on if they ever live in the house again. The exempt gain is small compared to the rental income they should get.)

Thanks

[jainen]

>>How close to the house becoming a rental do they have to wait to make it a deductible rental expense vs a non-deductible homeowner expense?<<

If they are trying to claim rental expenses during a period of personal use, it would be nice to wait until they can show some rental activity at least SOMEtime during the tax year.

[Kea]

I'm pretty sure they aren't planning to do the repair in 2008. But, for example, if they move out in June and make it available to rent in July 2009, do they have to wait til June / July to do the repair? Then it might be under repair while the renter is already living there. Or, can they do it in April as a "making it rent-able" expense? What about January?

Thanks

[Evan S. Golar]

I'm pretty sure they aren't planning to do the repair in 2008. But, for example, if they move out in June and make it available to rent in July 2009, do they have to wait til June / July to do the repair? Then it might be under repair while the renter is already living there. Or, can they do it in April as a "making it rent-able" expense? What about January?

Thanks

You're making a presumption that this crack won't get discovered in the searching for a tenant phase.

What if there are local zoning requirements that require inspections and affidavits that need to be signed as to defects in the home as far as safety is concerned?

[Kea]

The crack is already there - there's no way to hide that. That's why I asked if there was no way to make it a rental expense. My guess is that it can't be deducted. But if the expense is delayed, could it be? Just trying to help them make this huge expense a little more manageable - IF possible (i.e. legal).

Thanks.

[kcjenkins]

An expense to 'make it rentable' should be capitalized, added to the basis that you depreciate when you start renting it. So they do get to deduct it, but not all at once.

[Kea]

How soon can they do it and it still count as "making it rentable" and not just a personal expense?

[kcjenkins]

Does not matter if they do it now or later, it should be added to basis [capitalized] if it is a significant repair that extends the useful life of the building, which I would assume it would do. So when the house is converted, it is part of the basis that you will then start depreciating.

[Kea]

Thanks so much!