Question

Expense deduction on new rental

Forum|Forum|1 year ago
March 8, 2025
1 reply
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I purchased a home in 2024 that will not be available to rent until 2025. I understand the improvements and cost basis, etc. My question is: I purchased this home in the name of my llc, we file a 1065/partnership return. From what I researched, it looks like the mortgage interest and property taxes paid have to be added to the cost basis in 2025. Since I do not itemize on Schedule A and we file a 1065/partnership return, I believe this is accurate?

D

DianeW777

Yes, you will add those costs to the property cost basis so that when it is available for rent, in 2025, you will begin depreciation in that month whether or not you have a tenant. This will all take place on the partnership tax return (Form 1065) and then a K1 is issued to each partner with their share of income.

Regs. Sec. 1.266-1(b) allows the taxpayer to capitalize the following into the cost or adjusted basis of the relevant property.

In the case of unimproved and unproductive real property:

Annual taxes;
Mortgage interest; and
Other 'carrying charges'

Note: Some times partners pay expenses and then want to use those expenses on their individual tax return to reduce the net partnership income. It can be done, however I advise submitting expense reports to the partnership and then let the partnership take the expenses. It's a smoother and more efficient way to handle expenses paid by partners.

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