I've owned rental properties and understood the difference between a repair (deductible that year) vs a capitalized expense (for a large appliance or carpets, for instance).

I'm now in a new situation, I bought a fixer upper in March '14 and it took until December before I could list it as available to rent. I'm now trying to understand what, if anything, is available as a deduction for 2014? The real estate taxes? Utilities? Is anything deductible that occurred before my "placed in service" date?

2 Answers 2


This particular issue is a hot and burning topic. The regulations on capitalizing and expensing have changed in 2014, and the rules are now more clear. Which makes it oh so much more complicated because the clear rules are self-contradictory and not easy to understand.

I suggest you have a licensed EA/CPA do your tax return for 2014, as even as knowledgeable about taxes as you may be - you don't have the expertise to fully understand these regulations. I'm sure I don't.

If you still want to do it yourself, you can start with this article from the Journal of Accountancy for a background and more pointers.

You can try and read the regulations yourself, if you want to understand how impossible they are to understand.


I'm not an accountant and there are rules that govern this stuff (rules I probably don't folllow since I don't bother too much with them), but here's the basic deal:

All the stuff like taxes, utilities, appraisals etc. that are clearly expenses are just that - expenses.

If you bought physical goods - a new water heater, a furnace, windows - those should be capitalized.

Should you capitalize the paint you put on the walls? Probably not. But if you replaced the siding and the paint was part of that - that's a judgement call (or maybe it's not - a real estate tax professional would know).

The IRS prefers you to capitalize, not deduct because they want you pay taxes now, not in the future.


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