Renovations on a rental in a year with no rental income

[Jeter2016]

Hi Everyone,
Client purchases a two family home in 2017 that needed a lot of work.
The client and son renovated the two family in 2017 with the intent of renting it out for investment income. It took longer then expected and incurred approx. $38,000.00 in renovation costs(plumbing, electrical, new appliance, etc)
They are not including their labor in the figure.
My question is do they have to break out the 38,000.00 in detail or can they just depreciate the home and the renovations in 2017 even though they did not have any income.
The intent was to have it rented in 2017, it just never happened....
Do I break out the renovations for materials, appliances, repairs etc or just capitalize it over 27.5 years and can I take the depreciation expense in 2017, even though they did not have income.
Many thanks in advance,

[TaxGuyBill]

Was it "placed in service" (ready and available to be rented) in 2017? If so, yes, the depreciation starts in 2017, even with no income. If it was "placed in service" in 2018, then it needs to wait until 2018.

You can 'pull out' things like appliances and carpet for separate (and shorter) depreciation. Everything else (purchase price and improvements before it was "placed in service") can all be depreciated as one asset over 27.5 years.

[taxea]

I agree with TaxBill. In service date on rental should be date the property was available to rent. Break out items that have a shorter depreciation, add others to basis depreciation.

[ledger@centurytel.net]

I agree with previous posts and just want to add that any improvements should be separated into the UOP (Unit of Property) categories (there are 8 separate from the building itself) according to the final tangible property repair regs. This is more beneficial to your client due to being able to segregate out the UOP systems which enables shorter depreciation periods for those items rather than depreciating all at 27.5 years. This also may make available bonus and/or Sec. 179 depreciation on Sec. 1245 property, such as HVAC, security systems, etc. Depreciation would begin when the property was ready to rent, not when the unit was actually rented, regardless if there was income or not.

[TaxGuyBill]

This is more beneficial to your client due to being able to segregate out the UOP systems which enables shorter depreciation periods for those items rather than depreciating all at 27.5 years. This also may make available bonus and/or Sec. 179 depreciation on Sec. 1245 property, such as HVAC, security systems, etc.

What basis do you think HVAC, security systems, etc. are §1245 property, and/or qualify for shorter recovery periods?

[taxea]

Not "do you think". Have your client get a detailed billing from the contractor that shows total materials/labor amount for each depreciation unit. It also benefits the client when separate depreciation is taken at the time a given item is replaced. Much easier to take it out of service without having to do cost/depreciation calculations.