In order to deduct costs as repairs rather than having to capitalize them, the rental unit must be placed into service. The costs of repairs prior to the rental being placed into service are capitalized and depreciated (IRS Reg. § 1.263(a)-2(d)(1)).
To place a property into service, it must be ready and available for rent.
Ready to rent means that the unit is habitable. A fully gutted rental unit will not qualify as ready. On the flip side, some localities require that the rental be completely finished and pass inspections before a landlord can legally rent the unit out. To be safe, think of “ready” as when you’d be able to receive a certificate of occupancy from your city or local government.
Available for rent means advertised for rent. We often see this step overlooked by landlords and their CPAs. Advertising the unit for rent mid-rehab is a simple way to check this part of the formula off, and then you just have to prove the date the unit was “ready” for rent and that date will be your placed in service date.
