Can I write off remodel costs for my rental property when I was living there during renovations?

Thanks for the explanation! That makes sense about the "placed in service" timing. So just to be clear, none of the material costs for the renovations we did while living there can be deducted as rental expenses, but they do increase our cost basis in the property? What about depreciation calculations? Does the increased basis from these improvements get factored into the amount we can depreciate now that it's a rental?

Correct, the renovation costs while you were living there can't be deducted as rental expenses, but they do increase your cost basis in the property. For depreciation purposes, your adjusted basis for the rental property would include your original purchase price plus the capital improvements you made before converting it to a rental. So yes, those renovation costs do increase the amount you can depreciate. You'll start depreciating the property (including those improvements) over 27.5 years beginning when you placed it in service as a rental property.

Did it actually help identify which specific types of improvements count as repairs vs. capital improvements? I'm converting my condo to a rental and trying to figure out if my bathroom remodel is considered a repair or improvement.

I'm suspicious of these tax tools... How accurate was it compared to what an actual CPA would tell you? I've been burned before by tax software giving me wrong advice about rental properties.

It specifically categorizes each expense based on IRS guidelines. For example, it flagged my new water heater as a capital improvement but some plumbing repairs as immediately deductible expenses. The bathroom question depends on what you did - a complete remodel is usually a capital improvement, but fixing a leaky faucet would be a repair. The results were actually verified by their in-house tax professionals who review the AI analysis. I compared the results with what my previous CPA told me and they matched up, but I got the answers in minutes instead of waiting days and paying hundreds in consultation fees.

How does this actually work? Do they just call the IRS for you? Couldn't I just do that myself?

I'm calling BS on this. Nobody gets through to the IRS in 15 minutes, especially during tax season. The IRS phone system is completely broken - I tried calling 8 times last month.

They don't call for you - they use technology to navigate the IRS phone tree and wait on hold, then when an agent is about to pick up, they call you and connect you directly to the IRS agent. You're the one talking to the IRS, they just handle the hold time for you. I was skeptical too before trying it. The IRS phone system IS broken, that's the whole point. I tried calling on my own multiple times and never got through. With Claimyr I got connected in about 15 minutes while I continued working. The time savings was absolutely worth it, especially since I needed answers about these rental property questions before filing.

Wait, so if I paint a rental property before tenants move in, is that a repair or an improvement? What about replacing old carpet with new carpet of similar quality?

Interior painting is generally considered a repair, not an improvement, so it would be immediately deductible if done after the property was "placed in service" as a rental. The key timing is when you started actively marketing the property for rent, not necessarily when tenants actually moved in. Replacing carpet with similar quality carpet is typically considered a repair as well. However, if you upgraded from basic carpet to high-end flooring, that would likely be considered an improvement and would need to be depreciated. It's about whether you're maintaining the property's condition or actually improving/enhancing it.

I use this all the time for my rentals! It's great for appliances that cost under $2,500. Just make sure each item has its own receipt/invoice.

That's a good strategy. The de minimis safe harbor can be really helpful for things like replacement appliances, window AC units, and even some fixture replacements. The key requirement is having the proper documentation with each item clearly listed with its own cost. Items must be individually less than $2,500 - you can't split a $5,000 expense into two $2,500 ones to qualify. And remember you have to make this election every year on your tax return, it doesn't automatically carry forward.

This is really helpful advice about the allocation between personal and rental use periods! I'm new to rental properties and hadn't thought about how the initial personal use period would affect things when I eventually sell. Just to make sure I understand - when you say "allocate expenses correctly," does that mean I need to track what percentage of my ownership was personal use versus rental use? And then when I sell, only the rental portion would be subject to depreciation recapture? Also, regarding that timeline documentation you mentioned - should I be keeping records of things like MLS listings or rental ads to prove when I started marketing it? I want to make sure I have the right paperwork in case the IRS ever questions the placed-in-service date.

Exactly right on both points! For the allocation, you'll need to calculate the percentage of time the property was used for rental versus personal use. So if you owned it for 60 months total and 57 months were rental use, then 95% of any gain would be subject to rental property rules (including depreciation recapture) and 5% would be treated as personal residence gain. For documentation, yes - keep copies of your MLS listings, Craigslist ads, rental applications, any correspondence with property managers, etc. Also save records showing when you physically moved out (utility transfer dates, change of address forms, etc.). The IRS looks for objective evidence of when you actively began seeking tenants, not just when someone actually moved in. I learned this the hard way during an audit a few years ago. The agent wanted to see a clear paper trail showing the transition from personal residence to rental property. Having that timeline with supporting documents made all the difference in defending my deductions.

That's a really important point about the Section 121 exclusion that I hadn't considered! So if I understand correctly, since the original poster only lived there for 3 months before converting to rental, they've essentially given up the opportunity to exclude up to $500K in gains when they eventually sell? That seems like it could be a costly mistake depending on how much the property appreciates over time. Is there any way to potentially convert the property back to a primary residence later to meet that 2-year requirement, or would the IRS consider that tax avoidance? Also, for future reference - if someone is considering converting their primary residence to a rental, would it make sense to wait until they've lived there for the full 2 years first to preserve that tax benefit?

You're absolutely right about the Section 121 exclusion! The original poster has essentially forfeited that significant tax benefit by converting after only 3 months of personal use. Technically, you could move back into a rental property to try to meet the 2-year requirement, but the IRS is very strict about this. You'd need to genuinely use it as your primary residence (not just claim you do) and the "2 out of 5 years" test is measured at the time of sale. Plus, there are additional complications when you've claimed depreciation on the property. For future conversions, absolutely wait the full 2 years if possible! The potential tax savings from the Section 121 exclusion usually far outweigh any rental income you'd miss during those extra months. It's one of the most overlooked aspects of the rent-vs-sell decision that can cost people tens of thousands in unnecessary taxes down the road. The key is planning ahead rather than making emotional decisions about moving. I've seen too many people rush into conversions without considering the long-term tax implications.

This spreadsheet approach is brilliant! I wish I had thought of this when I converted my property last year. I ended up with a shoebox full of receipts and had to reconstruct everything months later for my tax preparer. One thing I'd add to your spreadsheet suggestion - include a "Notes" column where you can briefly describe what the expense was for. For example, "bathroom sink faucet replacement - repair" vs "kitchen cabinet upgrade - improvement". This context is super helpful when you're trying to remember months later whether something was maintenance or an actual improvement. Also totally agree about the CPA consultation. I thought I could handle it myself with TurboTax but ended up missing several deductions and incorrectly categorizing some expenses. The CPA caught mistakes that more than paid for their fee, plus gave me a template for handling rental property taxes going forward. @Ivanna - have you found any good apps or software for tracking ongoing rental expenses after that initial conversion? I'm looking for something that makes receipt management easier than just throwing everything in a spreadsheet.