Deducting expenses incurred after ceasing vacation rental

[cgarai]

Hi,

I have a vacation home I rented for years and due to law changes in the state of Hawaii I was forced to cease renting it.  I had legal expenses trying to fight the changes that I incurred in the year after I was forced to stop renting it.  Are these expenses deductible?

Thanks

Chris

[ZoltanB45]

As long as you are attempting to rent it, which is what the legal fee was for, you can write it off. I would record it as an ordinary loss, not passive.

[cgarai]

The issue is that the bills for the legal expenses were incurred after I was forced to stop renting it and into the following year and were paid in the following year. 

I'm unclear on the difference between ordinary and passive income and how it gets differentiated on Sched E. 

Thanks

Chris

[AmyC]

The question becomes did you have vacant property that you could not rent because of legal issues? If yes, then deductible expense on sch E. Sch E may be ordinary or passive depending on other factors that are asked in the program. See page 13 for passive income.

Publication 527, Residential Rental Property (Including Rental of Vacation Homes) states:

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.