Hi all, I understand that expenses (e.g. repairs) before a rental property is placed in service (i.e. made rent-ready) have to be capitalized.
For a cash-basis taxpayer, consider the following scenario:
07/01/2025 – $1,000 of repairs performed and invoice sent to taxpayer
07/15/2025 – Property placed in service
07/30/2025 – $1,000 payment made to vendor for repairs.
Can the $1,000 be expensed as the payment occured after property placed in service or does it still have to be capitalized. Would really appreciate if someone can also quote any relevant references. Thanks!!
Rental property expenses "accrued" before placed in service but "paid" afterwards.
byu/Away-Basis-6005 intax
Posted by Away-Basis-6005
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This likely depends on whether the taxpayer/their rental is using cash basis or accrual basis for accounting purposes. Most use cash basis, so what matters is when the money is paid/received, not when the expense is incurred/income is earned, so this could be expensed rather than capitalized.