expenses on rental/ personal use property

[tolmama]

our rental was only rented for about 3 months last year and the only income was the security deposit.  we had considerable repairs when the renter moved out as well as made some upgrades.  in June , a relative began 

using the property.  can I deduct those repairs and upgrades to offset the security deposit?  if so, where do I enter this as Turbo Tax is prorating the insurance and taxes based on personal use/rental days.

[DianeW777]

It depends. The rental is allowed to make repairs and capital improvements while pending another tenant. Those expenses would be claimed as rental income and expense as you have done while the tenants were there. Once the relative moved in, review the information below to determine the remainder of the year.

• Where do I enter income and expenses from a rental property?

The question is whether, in June, when the relative moved in, is that person paying fair rental value (FRV). If so, you can add the capital improvements as a second asset and expense any repairs you may have had. 

• FRV represents the amount of rent a property would likely command in the current market, considering factors like location, property condition, amenities, and the overall local real estate market. 

A not for profit rental (relative pays less than FRV) has special rules which would eliminate any expenses beyond income.

Not Rented for Profit  (IRS Publication 527)

If you don’t rent your property to make a profit, you can’t deduct rental expenses in excess of the amount of your rental income. You can’t deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.

Be sure to answer the questions about converting the property and number of days rented if the 'not rented for profit' applies for the remainder of the year when the property was no longer available for rent.

[tolmama]

turbo tax is prorating the expenses based on number of days rented vs personal days.  is this correct?  

if not collecting FMV, I can only expense up to the amount of income, correct?

[ThomasM125]

Yes, days the property is rented at less than fair market value are considered personal days, so the proration is correct. You are also correct that you can only deduct expenses up to the amount of rental income if not collecting the fair market value of rent.