We created an LLC for an investment in real estate in 2006. We made various capital improvements to the property in January and February of 2012. We sold the property in March 2012 and never actually rented it. We are wondering if the property can still be classified as a rental and if the capital improvements can be added to the basis?

ANSWER

Expert Todd Alexander's Answer:

The capital improvements are added to the basis of the property for the purposes of determining the gain or loss of the disposition. In terms of the property itself, it depends upon when, and if, the property was put into service for its intended use. This is also important for purposes of depreciation expense. Just because there was not a tenant or lease in place does not mean there was no rental activity. The facts and circumstances, such as advertising, hiring a management company and others will help clarify and substantiate.

Todd Alexander, CPA

California

20 yrs experience

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31 Ans.