According to Pub 527, "Vacant rental property. 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.”
In my case, the property (my personal residence) was vacant starting April 30 until it rented for 5 months starting in June, and then I reoccupied it in November. So, the property is therefore "placed in-service" and depreciation begins in April instead of when the lease commences and ends in October. Additionally, expenses such as insurance, taxes, utilities, and HOA costs for April are deductible.
I had a lot of trouble trying to understand how to input this into TT, because it prorates costs based on the rental and personal days entered - vacant days are not an input. However, after reading the TT help, I discovered the following statements:
In the year you convert your property from personal use to a rental, the days you lived in the home as you primary residence prior to conversion do NOT count as personal use days.
In the year you convert your property from rental to personal use, the days you lived in the home as you primary residence after the conversion do NOT count as personal use days.
So in my case, I entered the 5 months as 153 days rented and zero days of personal use. Then I input costs for the lease and vacant term ( excluding all costs during the time I occupied the condo ), and TT allocated 100% of it to Schedule E.
Additionally, for depreciation TT assigned 100% as the “Percentage of Business Use” on line 6 of the Asset entry form. I kept thinking this was wrong since the asset was only in service for 6 months as business plus 6 months of personal use. But, upon further reflection this is correct. The full cost basis of the asset should be depreciated not 50% based on the business use, since TT is going to calculate depreciation for only 6 months. In my case, I input the condo was placed in service in April and then converted back to personal use in Nov. Using a cost basis of 50% is definitely not correct - if I had only rented the condo for 1 month TT would only have calculated 1 month of depreciation on 12.5% of the cost basis.
Another point to note, for anyone else reading - I wanted to expense some Sec 179 furnishings purchased in 2021 that individually cost less than the required $2500. But, as noted in the TT help screen “A Sec 179 deduction is subject to recapture if you converted the asset to personal use before the end of its depreciable life.” So I was not able to deduct these items since I moved back into the condo in November, well before the depreciable life end.
Once again, thanks for you help and comments.
