Can I Claim Any Rental Loss?
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Al816
Level 2

Can I Claim Any Rental Loss?

I converted a personal condo to rental property in 2019, but got water damage before I was able to rent it out...and condo association did not repair until very end of the year.  Can I deduct any loss (mortgage, condo fees, insurance) or expenses (ads, material, labor, etc)?

 

Thanks in advance.

4 Replies
Carl
Level 15

Can I Claim Any Rental Loss?

Losses and other expenses incurred before the property was "available for rent" are just flat out not deductible. Period.

However, what was the extent of the water damage? There is a difference between a repair, and a property improvement. If restoration of the damage would classify as a property improvement, as opposed to a repair, that's treated differently.

If the damage occured "AFTER" the property was converted to a rental, that would matter too. It does not matter if it took you months to actually get a renter in their either. What matters is the date you converted it to a rental, which can not be until at least one day after you moved out of the property.

The property is considered "available for rent" on the first day a renter "could" have moved it. Doesn't matter if it took you months after that date to actually get a renter in there.

 

 

Al816
Level 2

Can I Claim Any Rental Loss?

Thanks, Carl!  I guess it would be best to give exact dates and more details.

 

- Aug 17: Available for rent, I paid for cleaning and advertisement

- Sept 8: Water damage

- Dec 24: Repairs completed (new floors, repaint, etc)...condo association paid for most of repairs.  I paid for some repairs and some upgrades (new sink, etc).

- I was unable to rent for remainder of the year (and ended up selling it in Feb 2020).

 

Am I able to deduct anything for the Aug 17 - Dec 31 period?  Mortgage, condo fees, taxes, repairs, improvements?

 

Thanks!

Carl
Level 15

Can I Claim Any Rental Loss?

So lets recap:

I converted a personal condo to rental property in 2019, but got water damage before I was able to rent it out..

- I was unable to rent for remainder of the year (and ended up selling it in Feb 2020).

So what you're saying is that you "NEVER" rented the property out. Forget the rental angle. Just forget it. It's just dumb to have to deal with depreciation recapture on property you *NEVER* rented out.

Your property improvements add to the cost basis of the property. Your repairs are "a physical part of" the property improvements. (If there had been no water damage, not one single bit of the work would have been done or necessary.)  So everything is a property improvement that adds to the cost basis.

Nothing (and I mean absolutely nothing) gets reported on SCH E. You won't even complete a SCH E at all. To report as such does nothing more than create unnecessary paperwork that will *Not* benefit you one single penny.

Finally, forget about the advertising costs. It's not like you spent tens of thousands of dollars on that. I doubt you spent more than $100, and that will not make a penny of difference to your tax liability. Besides, claiming advertising costs for a property that you *never* rented out, but instead sold, is a flag raiser.

Simply report this sale as the sale of your primary residence (which it exactly what it is) in the Sale of Home (Gain or Loss) section.

As you work it through *READ* *THE* *LINKS*. I'm talking about the "learn more" links you'll see on many of the screens. You'll learn what you can deduct as sales expenses and other things.

Now of course, since you didn't sell the place until 2020, you won't report or claim jack squat on your 2019 return, except for the standard things like property taxes and mortgage interest paid in 2019. But that's a SCH A itemized deduction.

Since you never actually rented the property out, reporting it as a rental property on your 2019 return can (and probably will) bite you on the 2020 return. It's like hanging out a sign that says "Hey! IRS! Audit me now! Please! Hurry! Quick! Fast!"

Additionally, since it would have been investment property for less than a year. you *might" make yourself subject to the higher short term capital gains tax rate. (not sure on that) if you continue to push the rental property angle. I suggest you leave well enough alone. Didn't you sell it because you got tired of dealing with it anyway?

 

Al816
Level 2

Can I Claim Any Rental Loss?

Thank you, Carl.

 

Yes, your advice sounds spot-on...I will claim as property improvements in 2020's tax return.

 

Thanks!

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