Does performing final repairs or improvements delay the start of depreciation on a rental property if it is otherwise ready to rent in 2024?
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No, performing final repairs or improvements does not, by itself, delay the start of depreciation on a rental property if the property is otherwise ready and available for rent.
1. Key Principles:
- Depreciation Begins When Property Is Placed in Service: For rental property, depreciation begins when the property is "placed in service," which means it is ready and available for a specific use in your rental activity, even if it is not actually rented yet. The property does not have to be rented or occupied; it just needs to be available for rent.
- Repairs and Improvements After Placed-in-Service Date: If you perform repairs or improvements after the property is already ready and available for rent, those activities do not retroactively delay the placed-in-service date for depreciation purposes. You begin depreciating the property as of the date it was first ready and available for rent, not the date the repairs or improvements are completed, unless those repairs or improvements are so substantial that the property is not available for rent until they are finished.
2. Supporting Details:
- According to IRS Publication 527, "You begin to depreciate your rental property when you place it in service for the production of income. You stop depreciating it either when you have fully recovered your cost or other basis, or when you retire it from service, whichever happens first. You place property in service in a rental activity when it is ready and available for a specific use in that activity. Even if you aren’t using the property, it is in service when it is ready and available for its specific use".
- Example from Publication 527: "On April 6, you purchased a house to use as residential rental property. You made extensive repairs to the house and had it ready for rent on July 5. You began to advertise the house for rent in July and actually rented it beginning September 1. The house is considered placed in service in July when it was ready and available for rent. You can begin to depreciate the house in July".
- If you are making improvements that are so significant that the property is not available for rent (for example, the property is not habitable or cannot legally be rented until the work is done), then the property is not considered placed in service until those improvements are complete and the property is available for rent.
- Routine or minor repairs that do not prevent the property from being available for rent do not delay the placed-in-service date. You can begin depreciation as soon as the property is available for rent, even if you continue to make minor repairs or improvements.
Summary: If your rental property is otherwise ready and available for rent in 2024, you begin depreciation at that time, even if you are still performing final repairs or improvements, as long as those activities do not prevent the property from being available for rent. If the repairs or improvements are so substantial that the property is not available for rent, then depreciation begins when the property becomes available for rent.
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