I paid interest and taxes on rental property before I put it into service how do I deduct them now
When you incur expenses on a rental property before it is placed into service, you generally cannot deduct them immediately. However, you can capitalize these costs and add them to the property's basis. Here's how you can handle the interest and taxes: 1. **Interest**: Mortgage interest paid before the property is available for rent is not immediately deductible. Instead, you should capitalize it as part of the property's basis. Once the property is placed into service, you can start deducting mortgage interest as an expense on Schedule E (Form 1040) for rental income. 2. **Property Taxes**: Similar to interest, property taxes paid before the property is available for rent should be capitalized. Add these taxes to the property's basis. After the property is placed into service, you can deduct property taxes as an expense on Schedule E. 3. **Placing the Property into Service**: A property is considered "placed into service" when it is ready and available for rent. This means all necessary repairs and preparations are complete, and you are actively seeking tenants. 4. **Depreciation**: Once the property is placed into service, you can begin to depreciate it. Depreciation allows you to recover the cost of the property over time. The capitalized costs, including the interest and taxes, will be part of the depreciable basis. Remember to keep detailed records of all expenses and consult with a tax professional if you have specific questions or need assistance with your tax return.
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