Rental Depreciation

[MAMalody]

I don't see this very often as my client listed is very limited and narrow, only pastors, so I need some help. A client has puchased two single family dwellings in mid 2012 and had repairs etc that needed to be done before they could be rented. Units became available for rental in 2013. In reference to the expenses such as cleaning, repairs, insurance, etc., I recall these expenses being added to basis for depreciation purposes that would start in 2013. The property taxes paid would be deductible on Schedule A for 2012. I can't remember what the mortgage interest would do. Do I remember this right? I looked in TTB and couldn't seem to find what I needed. Pub 527 didn't address this issue.

[erchess]

I can offer some help maybe

My understanding is that you cannot have immediately deductible rental expenses for a year in which the unit is not available for rent. So you capitalize the 2012 expenses and begin to claim the relevant depreciation in the month in which the units became available to rent. Then the real estate taxes can go without limit on the Sch A so no worries there. The problem with the mortgage is that all the normal rules about how much has been borrowed and the fact that there can only be at most two homes with mortgage interest on Sch A apply as usual. I am not sure whether you can do anything with the mortgage interest that cannot go on E or A.

[Gretel]

Mortgage interest

If any mortgage interest can be taken on Sch A depends on which property was used as collateral. Only if the personal residence was used (up to $100,000 if no other home equity interest) can that part of the interest be used for the third rental. The second one could be treated as second home maybe. All depends on total $$, not much concern if far away from 1 million.

[taxea]

If the rules are followed then expenses can be added to basis, insurance, property tax and mortgage go on the Sch E. You are allowed to take the expenses to upgrade the property if it was purchased for the purpose of renting.

[Roberts]

If the rules are followed then expenses can be added to basis, insurance, property tax and mortgage go on the Sch E. You are allowed to take the expenses to upgrade the property if it was purchased for the purpose of renting.

Exactly. Even if they are using their primary residence as collateral, they would let the IRS know that it is an investment loan linked directly to an investment property and deduct on their Schedule E.

[mactoolsix]

Pub 527 page 8 http://www.irs.gov/pub/irs-pdf/p527.pdf

The costs you may choose to deduct or cap-
italize include carrying charges, such as interest
and taxes, that you must pay to own property.

[MAMalody]

Thanks for the input. Solves my problem. Thanks.