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New Member

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

Due to destructive tenants, I have had to remodel my investment property over the last 2 years. I'm doing the work myself because of a lack of funding on my days off from my regular job. If this property has been sitting empty for this long, do I still have to report it as an investment?

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New Member

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

[Information added 2-9-16 10:06 am PST]

Yes, you would continue to show it as a rental (investment) if you want to deduct ordinary and necessary expenses plus depreciation.

  • On the 'Was This Property rented for All of 2015?' screen, answer 'No, this property was not rented all year'.
  • Enter zero (0) in the 'Days rented at a fair rental price' box
  • Enter zero (0) in the 'Personal use during the year' box
  • Continue with the interview.

If you do not want to claim the expenses:

  • On the 'Was This Property rented for All of 2015?' screen, answer 'No, this property was not rented all year'.
  • Check the box 'I did not rent, nor attempt to rent, this property at all in 2015'.  Since this property was not a rental at all in 2015, you should delete it as a rental. Make sure to keep your complete return, including the Depreciation Report for this property, from 2014. You will need the information when you sell the property or convert it back to a rental.

Per IRS Publication 527, Residential Rental Property, https://www.irs.gov/pub/irs-pdf/p527.pdf  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 cannot deduct any loss of rental income for the period the property is vacant.

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New Member

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

[Information added 2-9-16 10:06 am PST]

Yes, you would continue to show it as a rental (investment) if you want to deduct ordinary and necessary expenses plus depreciation.

  • On the 'Was This Property rented for All of 2015?' screen, answer 'No, this property was not rented all year'.
  • Enter zero (0) in the 'Days rented at a fair rental price' box
  • Enter zero (0) in the 'Personal use during the year' box
  • Continue with the interview.

If you do not want to claim the expenses:

  • On the 'Was This Property rented for All of 2015?' screen, answer 'No, this property was not rented all year'.
  • Check the box 'I did not rent, nor attempt to rent, this property at all in 2015'.  Since this property was not a rental at all in 2015, you should delete it as a rental. Make sure to keep your complete return, including the Depreciation Report for this property, from 2014. You will need the information when you sell the property or convert it back to a rental.

Per IRS Publication 527, Residential Rental Property, https://www.irs.gov/pub/irs-pdf/p527.pdf  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 cannot deduct any loss of rental income for the period the property is vacant.

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Level 1

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

Thanks for the answer.

Just want to confirm

"However, you cannot deduct any loss of rental income for the period the property is vacant."

Does this mean even the property tax and/or the mortgage interest cannot be deducted?

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Level 13

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

<<Does this mean even the property tax and/or the mortgage interest cannot be deducted?>>

 

No.  It means that you cannot take a deduction for the rent you would have or might have collected, had the property been rented instead of vacant.

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Level 15

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

@sonnet - Yes & No.

The property tax can be deducted.  Property tax on any real estate is deductible on Schedule A (itemized deductions).

Schedule A deductions for mortgage interest is only deductible on your primary and 2nd home. Investment interest (including mortgage interest on unproductive real estate) is deductible to the extent of investment income.

 

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Level 15

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

All income and expenses are reported on the Sch E  if the property was available for rent or being repaired  EVEN  if the place is vacant for a time.  

 

For instance renters move out in January and you had to make repairs so the place was vacant for 3 months, then you put it back on the market but you didn't get a renter in again until December.  So for the entire year you can take the regular carrying expenses and the depreciation on the Sch E.   Read the IRS Publication 527 for information on being a landlord.  

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Level 15

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

@Critter @Hal_Al @TomD8 @sonnet if you will look at the date/time of the original post in this thread, as well as the original "best answer" you will see that both have the same exact posting date/time of June 7, 2019 6:01 PM. This is actually the exact date/time this thread was copied over from the old forum to this new forum. The thread itself is several years old and out of date. Thusly, the information given in this thread for 2019 is conflicting, confusing, and some of it incomplete.... not necessarily wrong. (though one response provides flat out wrong information.) Here's the scoop for 2019.

 

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

You have two choices.

OPTION 1: Convert Property to Personal Use

1. Convert the property to personal use effective Jan 1, 2019. You can not claim one penny of rental expenses. When asked for days rented you'll enter ZERO for days rented, and ZERO for days of personal use. DO NOT under any circumstances select the box for "I did not rent or attempt to rent this property at all in 2019. If you do, then you'll be FORCED to delete the SCH E. Do that, and you're screwed.

For rental income, you'll enter a ZERO.

For rental expenses, work it through. But you don't have to enter anything on the first two "Common Expenses" screens. None of that is deductible since the property is converted to personal use. But you still have to work it through to the Mortgage Interest screen. If the program has auto-entered any amount above zero, you have to change it to a zero and continue working on through the expenses section.

You'll enter the mortgage interest on the SCH A which you'll deal with under the deductions and credits tab (when you get to that point in the program) in the "my home" section.

This action will stop depreciation on the property. But note that you can "NOT" deduct one single penny of rental expenses on the SCH E. In fact, you can't claim "any" deductions what-so-ever on the SCH E.

But do not confuse this with the cost of the work you are doing. If what you are doing to the property is classified as a property improvement, then it's not deductible "per-se" any way you look at it. It's capitalized and depreciated over time, with the "time" starting on the date you actually place the property back "in service" as a rental.

Once you complete the tax return it is *IMPORTANT* that you print out the tax return and confirm that you have BOTH copies of the IRS Form 4562 that are tied to this converted rental. Both forms print in landscape format. One is titled "Depreciation and Amortization Report" and the other is "Alternative Minimum Tax (AMT) Depreciation". You will NEED them both when one of three things happens in your life in the future.

1. You convert the property back to a rental.

2. You sell or otherwise dispose of the property.

3. You die.

 

OPTION 2: Maintain the Property as Residential Rental Real Estate

With this option, you basically "do nothing". When asked if the property was rented all year you'll select NO.

DO NOT select the box for "I did not rent or attempt to rent this property at all in 2019". If you select that box, you'll be forced to delete the SCH E. Do that, and you're screwed.

For days rented enter ZERO. For personal use days enter ZERO.

For rental income, enter ZERO.

For rental expenses you can work it through and enter the appropriate expenses. I am expecting you to have the following expenses.

- Cleaning & Maintenance

- Insurance

- Repairs (See below so that you don't mix repair costs with property improvments)

- Supplies (primarily cleaning supplies such as bleach, rags, mops, brooms, etc. Don't "double-dip" with the Cleaning & Maintenance category above)

- Real Estate Taxes

-Utilities (water, electric, gas)

- Mortgage Interest

 - In Misc Expenses, if you pay HOA fees for that property, claim them here.

Now by maintaining the property as rental property during your repair/restoration process you will be able to "claim" all your rental expenses with the major ones being mortgage interest, property taxes and property insurance.  However, since you have no rental income in 2019 from which to deduct those expenses, they will not be "allowed". What happens is that they will carry over to the next year where they can be deducted "IF" you have the rental income from which to deduct them.

It is "VERY" rare for rental property to actually show a taxable profit too. In fact, it's more common for the carry over losses to just carry over and increase with each passing year. This helps in the year you sell or otherwise dispose of the property because in the year of disposition, all those  carry over losses can be taken against other "ordinary" income. If anything, this will reduce your taxes on the depreciation you are required to recapture and pay taxes on in the year  you sell the property.

Overall, I would suggest you go with OPTION 2 if you will be renting the property out again once you've got it ready.

If any of the work you are doing is classified as a property improvement, then you will not enter the property improvements into the TurboTax program until the tax year you actually have the property move-in ready for a new tenant.

Now here's those definitions I promised to provide.

 

RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.

Repair

Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.

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Level 1

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

Hi Carl: Many thanks for your insightful comments! I have used  TurboTax Home and Business for many years! My rental house (since 2001) was not rented during 2019 and I sold it this year (01/17/2020). I am following your OPTION 1: Convert Property to Personal Use. When I examine Form 4562 it shows a "current depreciation" of several $100.00. Should it not zero ??????

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Level 15

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

I sold it this year (01/17/2020). I am following your OPTION 1: Convert Property to Personal Use.

Don't do that. Leave it as rental property. If you convert it to personal use on your 2019 return, then next year when you report the sale on your 2020 return you'll be "going around your elbow to get to your thumb" to report this sale correctly.  With only 16 days as a rental in 2020, just leave it classified as a rental and your tax life will be *S*I*G*N*I*F*C*A*N*T*L*Y* easier when you report this sale next year.

When I examine Form 4562 it shows a "current depreciation" of several $100.00. Should it not zero ??????

No, it should not be zero. Depreciation occurs while the property is "classified" as a rental. Weather it's actually rented or not is irrelevant. So even if you convert the property to personal use on Jan 1st of the tax year, you're still going to take at a minimum, 15 days of depreciation based on the mid-month convention use requirement for rental property. But like I said above, since you only have 16 days of ownership for 2020, just leave it classified as a rental.

Take note that I"m trying to prevent you from jumping off a cliff here that you don't even know is there. But if you convert this property to personal use on your 2019 return, you'll risk finding yourself falling down a bottomless pit when you get into your 2020 return next year, kicking yourself in the butt and cussing about "damn! I wish I'd listened to that guy!"

I've been there, done that, got the T-Shirt. You don't want my T-Shirt.

 

 

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Level 1

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

Thank you Carl for your rapid and helpful reply. I am following your suggestions in Option2: Since I have no rental income in 2020  ( only the sale 1099-S income) will I be able "claim" any of the 2019 rental expenses?

Thanks in advance.

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Expert Alumni

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

You can only claim rental expenses for a period of time during which the property is either available for rent or is temporarily not available only because you are preparing it to be rented.

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New Member

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

@Carl My scenario is similar to @shagbark except that I did not hold my rental property into 2020.  I had normal rental income and expenses through 2018.  I did not have any rental income during 2019, and then sold it in November 2019.  Your Option 1 seems to be the best for my case.  I did have plenty of repairs & improvements throughout 2019 before selling, but it sounds like none of that will get captured anywhere due to not having any rental income.

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Level 15

If my rental home hasn't been rented in the last two years, do I still have to claim it as an investment property? I have had no income from this property in two years.

I did have plenty of repairs & improvements throughout 2019 before selling, but it sounds like none of that will get captured anywhere due to not having any rental income

Property improvements are their own thing having nothing to do with repairs. Improvements are entered in the assets/depreciation section and depreciated over time. If any property improvements were done between the time the last renter moved out and the sale of the property, then no depreciation is taken. But they still get entered so as to add to the cost basis of the property. (Unless you want to pay taxes on the money you spent for the improvement).

If you show the property converted to personal use on 1/1/2019, then I would expect a vast majority (if not all) of your repair expenses to instead be sales expenses. You can include in sales expenses those costs associated with "preparing the property for sale". So that's why I say that. Keep in mind also that if you convert the property to personal use on 1/1/2019 several things are true then.

 - Depreciation stops on 1/1/2019 (there will be some depreciation. But we're talking a minuscule amount here)

 - Property improvements done in 2019 will need to have a business use percentage of 0%, but use 1% if the program refuses to accept 0%. Then just make your "in service" date for that asset, the sale date of the property. If any depreciation is taken, it will be minuscule.

- You will not be able to report this sale in the rental section. You'll have to report it in the Sale of Business Property section. Remember, on the depreciation recapture you also have to include in that total, any depreciation taken in 2019. But again, that should be minuscule if any depreciation is figured at all.