I've owned a residential single-family home as a rental since 1992. Due to numerous circumstances, the house was vacant for almost four years (until last week). I've have continued to maintain it and did extensive renovations to it in 2024 and 2025. I filed taxes manually in 2021. I filed using TurboTax in 2022. I filed an extension for 2023 and 2024, and have not filed either yet. I intend to complete 2023 in the next two weeks and 2024 before the October 15 deadline. Do I need to be concerned about the hobby rule since the house has been vacant for almost four years? Will TurboTax prompt me through the process to address it, if it applies?
Thanks.
If you have a rental property that is vacant, then you simply have no rental activity for those years. The hobby rule is concerning earned income, not passive income which is how a rental activity is usually classified.
However, keep in mind that renovations and other expenses related to the property may not be deductible if the property was taken off the rental market. The key for deductions is that the property is rented out or actively trying to rent. And during the vacancy period, you will not be allowed to deduct the loss.
Can I carry over the loss to future years when the property is rented? How could you do a major renovation if the property is rented? Is the only way to recoup the expenses by adding to the basis at the time of sale, which might be decades from now? Will TurboTax walk me thru the steps to file correctly for this situation?