@BobWattsi There is a special allowance for rental real estate activities that allows landlords who actively participated in their real estate activity to deduct up to $25,000 in rental losses. The allowable amount phases out between $100,000 and $150,000.
There is no limit to the amount of qualified rental expenses you can deduct, except when the expenses put you in the loss limitation situation. Any losses in excess of the allowable amount are suspended and will offset future profit. Any unused losses can be deducted in the year of sale.
The IRS uses a calendar year so a renovation can last more than one tax year. However, you will only be able to deduct expenses in the year actually paid.
Not actively rented. If you are not renting a property while under renovation, then 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.
If the property isn’t held out and available for rent while listed for sale, the expenses aren’t deductible rental expenses. Those expenses would be added to the basis.
Repairs versus improvements. You can deduct repairs, but must capitalize (spread the deduction over years) of an improvement. Repairs are any expenses of maintaining a property in its present condition. Improvements are expenses which result in a betterment of your property including expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property.
For more on rentals see IRS Publication 527.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
