I am homeowner, I purchased an RV in 2020. I had the intention of renting out the RV. I inquired with a company to do this in May of 2022. In the meantime, I have paid for the storage and upkeep of the RV, and maintenance of the RV. It has not been rented out yet (no income) , nor has it been used for personal use in 2022. I also intended to rent out their primary home in 2022, and have made substantial repairs to the home. I did not reside in the home in 2022, and it has not been rented out yet ( no income) . I have repairs and expenses for both, and would like to claim the max deductions. While I know the home is a schedule E, Question, is the RV a schedule C or schedule E based on the circumstances? Thanks
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Please clarify if either the RV or the home were listed as available for rent during 2022.
Had to read your post several times to realize you're talking about two completely different things here.
The RV rental is a SCH C business. Nothing for the RV is deductible until the date the RV is "in service"; meaning that its available for rent. Repairs/maintenance/storage costs incurred before it's available for rent are flat out not deductible at all. Something like a major repair (replacing a broken axle, or new engine for example) add to the cost basis of the RV. But again, nothing gets reported on any tax return until the tax year the RV is in service and available for rent.
The residential real estate is reported on SCH E. Please read the below concerning the real estate, and by all means if you have questions, please ask. When it comes to rental real estate, absolute perfection in that first year is not an option; it's a must. Even the tiniest of mistakes can (and will!) grow exponentially over time. Then when you catch the error years down the road (usually in the tax year you sell the property) the cost of fixing that mistake *WILL* be expensive. so if you have questions, ask! Don't care how dumb you think it is. The only stupid question, is the one you didn't ask. It's not like we learn this stuff through osmosis.
Rental Property Dates & Numbers That Matter.
Date of Conversion - If this was your primary residence or 2nd home before, then this date is the day AFTER you moved out, or the date you decided to lease the property – whichever is later.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter was contracted to move in, and/or "could" have moved in. That would be your "in service" date or after if you were asked for that. Vacant periods between renters do not count for actual days rented. Please see IRS Publication927 page 17 at https://www.irs.gov/pub/irs-pdf/p527.pdf#en_US_2020_publink1000219175 Read the “Example” in the third column.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days *YOU* lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence, 2nd home, or any other personal use reasons after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.
RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED
Property Improvement.
Property improvements are expenses you incur that Improve, restore, or otherwise “better” the property. Basically, they retain or add value to the property.
Betterments:
Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. An example of a pre-existing condition or defect in this context would be something such as foundation repair (slab jacking) or some other, hidden and costly, anomaly.
Restoration:
Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition.
Adaptation:
Expenses that may be for adaptation include expenses for altering your property to a use that isn’t consistent with the intended ordinary use of your property when you began renting the property. Adding a wheelchair ramp would be an example.
Expenses for these types of costs are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.
To be classified as a property improvement, two criteria need to be met:
1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.
2) The improvement must retain or add "real" value to the property. In other words, when the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.
There are rules that allow you to just flat-out expense and deduct some property improvements instead of capitalizing and depreciating them, if the total cost of the improvement was less than $2,500. It’s referred to as “safe harbor di-minimis” But depending on the specific situation, this may or may not be beneficial. Just be aware that not every property improvement that cost less than $2,500 qualifies for this. If this interest you, the rules can get complex. So a good place to start reading is on the IRS website at https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations. The stuff on di-minimis starts about one page down.
Cleaning & Maintenance
Those expenses incurred to maintain the rental property and its assets in the usable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent for the very first time are not deductible.
Repair
Those expenses incurred to return the property or its assets to the same usable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent for the very first time are not deductible.
Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.
However, when you do something like convert the garage into a 3rd bedroom for example, making a 2-bedroom house into a 3-bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.
Thank to you both..
I only inquired about the RV with a rental company about listing with them, although I still had the intention of renting it. I had a sign posted in the window of the RV. The same with the home. So the only public listing was a rental sign. So in my circumstance, as far as the RV is concerned, this is schedule C? and no deductions for repairs and expenses if it was not actually rented out? Is there an option or opportunity for the RV to be a schedule E? It gets dicey when trying to interpret. Thank you for the help.
So in my circumstance, as far as the RV is concerned, this is schedule C?
Yes. The RV is SCH C.
I saw this in an IRS publication not to long ago. But for the life of me, I can't find it now. SCH E is used for "real estate", be it commercial rental estate or residential real estate being rented out. You're not renting real estate. You're renting what I guess one would call "personal property". Most likely with the RV stuff you're going to have both material participation and active participation in the RV rental business.
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