Is anything deductible on a vacation home purchase that is not yet rented?

[1housewizard]

Hello friends. I took a HELOC on NJ home to buy a vacation rental in Florida (early 2024). Did not receive approval to start renovations by year end. No renters in '24 but lots of expenses (oil tank removal, taxes, utilities, termite tenting, lawn maintenance/tree removal, insurance, etc.). I traveled several times. Stayed with family (no charge) but took flights and ate plenty. Is anything deductible for 2024 taxes? Thank you. 

[ThomasM125 · Accepted solution]

The only things that would be deductible in 2024 would be mortgage interest and property taxes as itemized deductions. The mortgage interest would only be allowed if you intended to use the house for personal purposes in addition to or in place of renting it out though.  Improvements you can add to the cost basis of the property for depreciation purposes in the year you start renting it out.

[1housewizard]

Thanks to all! Interest and property taxes make sense because it really wasn’t a rental but rather a vacation home. Although the interest is on the HELOC for a primary home so I understand applying that to a vacation home is a no- go. If I could go a little deeper: ultimately we will be there less than 15 days/year, for now… so once we begin renting, we can use all those lovely deductions and we begin depreciation. Is it a problem to claim the house as vacation one year and rental the next? What if we become snowbirders in 10 years, is it red flag to switch back to vacation?
How do tax benefits for depreciation and improvements work if the house is not rented for a few years after purchase? Are any depreciation or improvement deductions ‘lost’ by not renting in the same year in which you purchase or make the improvements?

[1housewizard]

@ThomasM125 Thanks to all! Interest and property taxes make sense because it really wasn’t a rental but rather a vacation home. Although the interest is on the HELOC for a primary home so I understand applying that to a vacation home is a no- go.

(Please stop me if I am taking advantage of your good nature) If I could go a little deeper: ultimately we will be there less than 15 days/year, for now… so once we begin renting, we can use all those lovely deductions and we begin depreciation. Is it a problem to claim the house as vacation one year and rental the next? What if we become snowbirders in 10 years, is it red flag to switch back to vacation?
How do tax benefits for depreciation and improvements work if the house is not rented for a few years after purchase? Are any depreciation or improvement deductions ‘lost’ by not renting in the same year in which you purchase or make the improvements?

[RobertB4444 · Accepted solution]

As you make improvements to the property while it is not rented you just need to keep track of them.  When you do decide to start renting the property the amount that you paid for it will be your depreciable "basis".  And you will add all of the improvements that you made to the amount that you originally paid for the property and that is the amount that you will depreciate.

Switching back and forth between being a vacation home and a rental isn't a red flag so much.  It's just a nightmare for record keeping when you have to keep restarting and stopping expenses and depreciation.  

The only deductions that you lose out on are the small expense that are associated with running the property.  You can deduct those on a rental and you can't deduct them on a vacation home.  And they are only deductible in the year they happen so once they're gone they're gone.

@1housewizard