@smeburg
(a) I would refer you to IRS Pub 527 for reasonably exhaustive and general; information about how to deal with rental properties.
(b) Expenses for repair and restore of the property / asset is generally included under repair category on Schedule-E. Even in the case of zero rental income, these are still listed as "Expense" and not " capitalized " i.e. not depreciated over useful life of the item in question.
(c) Improvements , on the other hand ( i.e. which increase the Fair Market Value of the asset ) must be capitalized ( i.e. depreciated ) over the useful; life of the asset in question. For example if the refrigerator is not working and is repaired i.e. put back in operation, it is a repair while replacement of the refrigerator with a new one should be capitalized.
(d) In general if your Schedule-E reporting results in a loss ( income LESS allowable expenses LESS yearly total depreciation ) and is above the PAL (Passive Activity Limit ) for the taxpayer, then the excess goes into suspended losses. Accumulated suspended losses are either used up in the following years or finally released at the time of disposition as part of the gain/loss computation on form, 8797
(e) if the intention of the repairs / improvements executed is for rental then generally property still remains subject rental rules / characteristic. This is of Course assuming that the property has not been used for personal purposes beyond the yearly allowance.
From what you describe in your post . I think your prop. is still rental / income property and therefore Schedule-E is still valid ( even if the rental income itself is zero for the period ).
The other option is to consider the property as second home and therefore repair expenses are disallowed but improvements are added to your basis in the property -- not capitalized. Note that mortgage interest deduction comes under your total ( i.e. your main home plus one second home ) indebtedness limit .
Another point to note that when you convert a rental/income property to second home, your basis in the property is adjusted taking into consideration accumulated depreciation while being rented.
Does this make sense ?
