01 Mar I’m a landlord. Can I deduct these expenses?

Q. I own a new rental property. I posted an ad on Sept. 21, 2020 and got the certificate of occupancy on Oct. 23. My tenant signed a lease for Nov. 7. Which date is my “available for rent” date so I can determine whether repair costs to prepare the house are deductible or if they are considered start-up costs and subject to the $5,000 cap?
— Landlord

A. Congrats on becoming a landlord.

Expenses incurred starting a business are usually non-deductible.

However, there is an exception when you start a real estate rental business, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

He said when you start a rental business, you can deduct up to $5,000 of start-up expenses.

“Start-up expenses are costs of investigating what it takes to properly run a rental business, property maintenance costs, insurance premiums, the cost to set up the business including costs to form an LLC, and so on,” he said.

You asked when the start-up period ends and the rental period begins.

“This cut off is when the property is available for rent and not when the tenant moves in,” Kiely said. “In your situation, you cannot rent the property until you receive the certificate of occupancy, so, I would say your property was available on October 23.

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This story was originally published on March 1, 2021.

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