Determining When Rental Property Improvements Are Considered "Placed In Service" for Tax Purposes

Thanks for the clear explanation! One follow-up question - what if I had made some small repairs to the upstairs unit while the tenant was still there (like fixing a leaky faucet for $200)? Would those minor repairs be deductible for 2023 even though I'm doing major renovations after they moved out? Also, is there a specific dollar threshold that separates "repairs" from "improvements" or is it more about the nature of the work?

Yes, any minor repairs you made to the upstairs unit while it was occupied would be deductible expenses for 2023, even though you're doing major renovations later. Those small repairs were necessary to maintain the property while it was generating income, so they're separate from your renovation project. There's no specific dollar threshold that separates repairs from improvements. It's more about the nature of the work. Repairs maintain the property in its ordinary efficient operating condition, while improvements add value, extend useful life, or adapt the property to new uses. So a $5,000 roof patch might be a repair, while a $1,000 upgrade to premium fixtures could be an improvement.

Does it actually work with rental property renovations specifically? I'm in a similar situation with a duplex I bought that needed tons of work, and I'm dreading tax time. Can it help determine what's an improvement vs a repair? My last accountant wasn't very familiar with rental properties.

I'm skeptical about these tax tools. I've tried a couple that claimed to handle rental property, but they weren't much better than just reading the IRS publications. Does it actually give different advice than what you'd get from a typical tax software? My situation with pre-rental renovations is pretty complicated.

Yes, it works really well with rental property renovations! It has specific categories for pre-rental improvements versus repairs made during tenancy. It helped me properly categorize about $40k in work across three units, and even flagged items that could be classified differently. It's definitely different from standard tax software. While TurboTax and others just give you boxes to fill in, taxr.ai actually analyzes your specific situation and documents. It looks at the timing of purchases relative to when units were rented and helps determine proper classification and depreciation schedules. For complicated renovation projects spanning multiple tax years like yours, it's way more helpful than generic tax programs.

How does that even work? The IRS phone lines are impossible - I tried calling about my rental property questions last week and gave up after being on hold for over an hour. Does this service really get you through faster or is it just another scam?

This sounds too good to be true. I've been trying to get someone at the IRS to clarify my rental property basis questions for weeks. Every time I call I get stuck in the automated system or disconnected. I find it hard to believe any service could magically get through when millions of people can't.

It works by using technology to navigate the IRS phone system and wait on hold for you. They essentially call the IRS, work through all the prompts, wait on hold, and then when they get a human on the line, they call you and connect you with the agent. So you don't have to sit there listening to hold music for hours. I was definitely skeptical too! I wouldn't have tried it if I wasn't completely frustrated after multiple failed attempts to reach the IRS myself. But I was trying to figure out some complicated basis calculations for my rental property before filing, and needed official clarification. The service did exactly what they promised - I got a call back when they had an IRS agent on the line, and I was able to ask my questions directly. Saved me literally days of frustration and potentially filing incorrectly.

That's interesting - I hadn't considered breaking out those components. Is that something I need a professional cost segregation study for, or can I just separate the costs based on my receipts? For example, I have separate receipts for the new refrigerators and stoves in each unit.

You don't necessarily need a formal cost segregation study for a triplex unless it's a very high-value property. For most small landlords, you can do a simplified component approach. Just keep your receipts organized and identify items with different class lives. Appliances, carpet, and furniture are easy - they clearly have 5-year lives. For your electrical and plumbing work, it depends on the nature of the work. If you replaced entire systems, those likely stay with the 27.5-year property. But if you installed new light fixtures or specific plumbing fixtures, those components might qualify for shorter depreciation periods. Just make sure you have good documentation showing what portion of your costs went to each category.

I switched from TurboTax to H&R Block Premium last year for my rental properties and found it much better for handling these situations. It specifically asks about improvements made before placing in service vs. repairs after tenants were in place. It also handles the component separation mentioned above more cleanly. The interview process walks you through each property separately which helps when units have different timelines.

Thanks for the suggestion! I'll give H&R Block a try this year. TurboTax was really frustrating when I tried to separate out improvements by unit - it kept lumping everything together which doesn't work when some units were rented and others were being renovated.

This is really helpful information about accessibility improvements and code compliance work! I didn't realize there might be different treatment for safety-related electrical work versus general upgrades. For my triplex, most of the electrical work was fixing code violations that the inspector flagged - things like outdated panels, missing GFCI outlets in bathrooms, and some unsafe wiring. Would this type of mandatory code compliance work be treated differently than if I had just decided to upgrade the electrical system for aesthetic reasons? Also, I did install some grab bars and wider doorway hardware in one of the units - not a full accessibility renovation, but some basic improvements. Is there a minimum threshold for claiming the disabled access credit, or would even small accessibility improvements qualify? The documentation tip is great - I have tons of before photos showing the condition when I bought it, but I should probably take some "after completion" photos for each phase of work to clearly show when each unit was ready for tenants.