Hi All,
I owned a rental property which was purchased as investment property and always has been used as investment property.
My tenant basically trashed the placed and behind on rent. The tenant moved out in July 2023. Since then, I have been hiring people to clean up and perform improvement to the property to prepare it for sale, and it was sold in February 2024.
I have read the publication 529 and it states the following: Publication 527 (2023), Residential Rental Property | Internal Revenue Service (irs.gov)
"If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. However, you can’t deduct any loss of rental income for the period the property is vacant.
Vacant while listed for sale.
If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. If the property isn’t held out and available for rent while listed for sale, the expenses aren’t deductible rental expenses.
"
However, I am still a little confused about how to correctly treat the following expenses after the tenant moved out and the eventual sale of the property.
1. Removed all the belongings (furniture, garbage, etc) and clean the house to habitable condition - I am not sure if this is rental expense, or could I put it as selling cost
2. Painted all the walls - I am not sure if this is an expense or an improvement to be added to cost basis
3. Refinished hardwood floors - I am not sure if this is an expense or an improvement to be added to cost basis
4. Replaced outdated countertops, kitchen floor tiles (this is clearly improvement and should be added to the cost basis)
5. Property Tax and Insurance during vacancy - not sure how to divide this.
Some of the works were done in 2023 and some were done is 2024, do you know what should I enter in 2023 returns.
Thank you!
