in between tenants

[gjgogol]

I have a rental that was vacant all 2020 year to do extensive repairs.  It required  a complete remodel to eliminate black mold throughout the house, paint, replace all flooring, replace appliances, install new floor drain tile, remove and replace drywall etc.  The repairs will improve the property since the appliances, flooring, fixtures etc. will be new, but the repairs were necessary due to the damage.  No one could move in during this time.  Are any of these expenses deductible in 2020 tax return? I also continued to pay property taxes and utility bills during this time.  Are these expenses deductible.  Some repairs cost over $600, I do not know how to answer the Form 1099-NEC questions.

[LenaH · Accepted solution]

Generally, the expenses incurred and paid in connection with managing and maintaining the property while it is vacant are deductible. Your regular reoccurring expenses (such as utilities and taxes) would be deductible. 

You can also deduct the amounts paid for repairs and maintenance. However, you cannot deduct the full cost of improvements. Repairs are usually generally quick fixes that help keep the property habitable and in good working condition. Although the price is irrelevant, most of my qualifying repairs tend to cost less than $500. Per the IRS, repairs in most cases do not add significant value to the property or extend its life.

Improvements, on the other hand, are anything that increases the value of the property or extends its life. These are categorized as a “capital expense” and must be capitalized as a long-term asset and depreciated over multiple years. You can deduct a small but even portion of these expenses in the current year with depreciation expense.

Improvements are usually more labor-intensive than repairs and typically cost substantially more. A rule of thumb is if you’re adding a new item or upgrading an existing item, then it’s usually considered an improvement.

Repair Examples:

• Fixing a broken lock
• Painting

Improvement Examples:

• HVAC system
• Renovating a kitchen
• Replacing a roof

For more information, please see Publication 527 and search for the Repairs and Improvements section. 

[gjgogol]

does all this apply even though i was in between tenants?

[gjgogol]

another response was It is a rental and expenses are deductible only if the property was ready and available to rent. This means you were seeking renters and that they could move in at any given time. If you were renovating for all of 2020, then this is not the case.