Covid hawaii rental complications

[f4tq]

Hi,

The last few years, I've rented my Hawaii house for 6 months/year where I customarily take depreciation/mortgage interest as expenses for those months.  I normally use the house the other 6 months.

Covid complications prevented me from doing either in 2020 except for a 6 month rental I commenced in mid Dec 2020.

Can I still take the expenses (primarily depreciation/mortage interest), which were all still there with house vacant, that I normally take?  I filed an extension as I stewed on this issue.

Please advise.

Thanks

[Carl]

You can deduct rental expenses starting from the date the property was placed in service as a rental. That has nothing to do with the date a renter actually moved in. So if you were actively trying to rent the property in June (and can prove it if audited) you start incurring rental expenses in June. The fact you didn't actually get a renter in there until December doesn't matter.

[Opus 17]

If the property was "in service" for the whole year (on the market, listed and available to rent) then you can deduct the entire year of expenses, even though you did not have a tenant the entire year.  

If you took the property off the market that's a different story. 

[f4tq]

Both the answers are similar and make sense to me.   Many thanks.

Technically the house was on the market for the whole year, but proving it becomes more difficult as I needed to make an appearance in Hawaii that I was reticent to make...  Covid be damned.

Given that I have 'written' evidence predating (4 months) the mid Dec rental, I have a follow-up functional TT question:

Assuming that the property was 'on the market'  33%, when entering data for the rental in TT,  should I do the math myself (33% x Total costs) and directly enter all the breakdowns, or should I change a factor elsewhere in the program and let TT do the math?

Again, many thanks.

[Opus 17]

---

@f4tq wrote:

Both the answers are similar and make sense to me.   Many thanks.

Technically the house was on the market for the whole year, but proving it becomes more difficult as I needed to make an appearance in Hawaii that I was reticent to make...  Covid be damned.

Given that I have 'written' evidence predating (4 months) the mid Dec rental, I have a follow-up functional TT question:

Assuming that the property was 'on the market'  33%, when entering data for the rental in TT,  should I do the math myself (33% x Total costs) and directly enter all the breakdowns, or should I change a factor elsewhere in the program and let TT do the math?

Again, many thanks.

---

Are you saying you had a possible tenant but you did not rent to them because you didn't want to fly out to Hawaii to make the arrangements?  That might be viewed as "not in service" or "on the market" if the IRS audited you.  @Carl what do you think?

[Carl]

 @Carl what do you think?

Depending on the time frame, how could they fly out to Hawaii? With the airlines practically grounded, it's perfectly possible that one could not have flown no matter how much money they threw at the airlines.  It most certainly would not be feasible to fly there and be forced to quaratine for 2 weeks just to deal with 1 or 2 days of "arrangements" for a rental property.

As far as proving anything, it's only necessary if the IRS audits you on that specific item and asks you to prove it. Realistically, I just don't see that happening to small time landlords like you and I. Unless of course, you give the IRS something that would raise an eyebrow, thus giving them reason to look at your tax return with more scrutiny.

Technically the house was on the market for the whole year,

Actually, there's really nothing "technical" about it. Either is was on the market, or it was not.

But if you decide otherwise, that means you converted it to personal use on your 2019 tax return thus stooping depreciation on all rental assets, and then you converted it back to a rental on some date in 2020. Doing that involves a lot of manual math on your part - as the program just can't handle it automatically and do so correctly.

[M-MTax]

Covid complications prevented me from doing either in 2020

As long as the way you report on your SCH E is consistent with prior years it will be unusual if the IRS takes any sort of an issue with it. Keep in mind that the status of being "available for rent" can be doing little more than telling a couple of folks that your unit is available for rent.

[f4tq]

Thanks for all the thoughtful answers.

Since I can't really take the loss, other than carry forward, I think I'll just keep my return consistent with other years.  It'd be hard to imagine getting yanked around for such an awful year but wonders never cease.

Its weird, to me anyways, to have to check both 'I converted to Personal' & 'I converted to business' in the rental profile section every year for the style of rental I have.   Seems so dramatic.

Anyhow, thanks again.  I'd give you all the best conversation if I could.

Best of health to y'all.

[Carl]

Its weird, to me anyways, to have to check both 'I converted to Personal' & 'I converted to business' in the rental profile section every year for the style of rental I have. Seems so dramatic.

Just be aware there's more to it than that. Each time you covert back to rental, you have to correct the cost basis by subtracting the prior year's depreciation from that cost basis, and starting depreciation anew with the new, lower cost basis.

Like I said before, the turbotax program can not "correctly" handle such a situation and requires manual math on your part. It's a real pain when you covert to personal and back to rental in the same tax y ear, because you have to enter the conversion back to rental as a completely new rental asset each and every year you do that. Anything else, and your tax returns for all those years will be wrong. Sooner or later, the IRS will catch up to that - most commonly in the year you sell or otherwise dispose of the property.