Are repairs you make before a rental building is ready to rent deductible?
Usually not right away. Work done on a building before it is placed in service, meaning ready and available for rent, is generally part of the cost of acquiring it, so it is added to the building's basis and depreciated, even if the same work would be a deductible repair a year later. Ordinary costs of managing and maintaining the property are deductible from the time you make it available for rent.
The date that decides it: placed in service
Publication 527 says you place property in service in a rental activity when it is ready and available for a specific use in that activity, even if you are not using it yet. Its example: a house bought on April 6, repaired, ready for rent on July 5, advertised in July and rented from September 1 is placed in service in July, and depreciation begins in July (IRS Publication 527).
For an apartment building bought with tenants in place, the building is usually ready and available on the day you close, so this question rarely comes up. It matters when you buy a vacant or partly vacant building, or one that needs work before anyone can live there.
Why pre-service repairs are capitalized
The Treasury regulation on acquiring property, 26 CFR 1.263(a)-2-2), paragraph (d)(1), says amounts paid to acquire a unit of property include the costs of work performed before the date the property is placed in service. Example 10 in that paragraph is a building bought in Year 1 and repaired before it is placed in service in Year 2: the owner repaired concrete steps, refinished floors, patched walls and painted. Even though none of that was an improvement, the regulation says the costs must be capitalized as amounts to acquire the building, because the work came before the building was placed in service.
Once the building is in service, the same kind of work is judged under the normal repair versus improvement rules, and routine repairs are deductible.
Sorting costs around the purchase
| Cost | Usual treatment | Source |
|---|---|---|
| Market studies and deciding whether and which building to buy | Generally not a cost of acquiring the building | 1.263(a)-2(f)(2)(iii) |
| Appraisal or inspection of the building you buy | Capitalized: inherently facilitative of the purchase | 1.263(a)-2(f)(2)(ii) |
| Paint, floor and drywall work before the building is ready for rent | Capitalized into basis | 1.263(a)-2(d)(1) |
| Insurance, utilities and maintenance once the building is available for rent | Deductible rental expenses | Publication 527 |
| Expenses while a unit sits vacant but is held for rent | Deductible, including depreciation; lost rent is not | Publication 527 |
Publication 527 adds that if you hold property for rental purposes you may be able to deduct ordinary and necessary expenses, including depreciation, while it is vacant, but you cannot deduct any loss of rental income for the vacant period.
A worked example
Example a made-up owner buys a vacant 8 unit building on February 10 for $760,000, of which $160,000 is land. Before it can be rented, the owner pays $38,400 for paint, floor refinishing and drywall patches, finishing on April 18, when the units are listed for rent. That $38,400 is added to the building's basis: $600,000 + $38,400 = $638,400, depreciated over 27.5 years from April under the mid-month convention, or $638,400 / 27.5 x 8.5 / 12 = $16,456 for the first year. If the owner had done the same paint job in May, after listing, it would generally have been a $38,400 repair deduction that year.
The difference is timing, not whether you ever recover the cost. But a $38,400 deduction now is worth more than about $1,400 a year for 27.5 years, so if a building is habitable, some owners place it in service first and do cosmetic work unit by unit as tenants turn over. Whether that works for your building is a question for your tax preparer.
Records that settle the question later
- The date the building, or each unit, was ready and available for rent, with the listing or advertisement that shows it.
- Contractor invoices with dates, split by unit where you can.
- The closing statement and the land value source.
- A note of which costs were capitalized and which were expensed, agreed with your preparer in the first year.
Setting up a newly bought building in DoorKeeping
When you add a property in DoorKeeping, it gets its own LLC books, bank feed and documents. Invoices you upload are read and coded by AI, and you can keep pre-service work in the building's asset account instead of repairs, then attach the listing that shows the placed-in-service date. Every posting that moves money waits for your one-tap approval. DoorKeeping organizes the records; your tax preparer decides the treatment.
Sources
- IRS, Publication 527, Residential Rental Property, read Oct 30, 2026
- 26 CFR 1.263(a)-2, Amounts paid for the acquisition or production of tangible property (Cornell LII), read Oct 30, 2026
Questions
- When is a rental property placed in service?
- When it is ready and available for rent, even if no tenant has moved in yet, according to IRS Publication 527.
- Can I deduct painting a vacant building before I rent it?
- Generally not as a repair. Work done before the building is placed in service is capitalized as part of the cost of acquiring it and depreciated.
- Are expenses deductible while a unit is vacant between tenants?
- Generally yes if the unit is held for rent. Publication 527 says ordinary expenses and depreciation may be deducted while vacant, but lost rent is not deductible.