How can I claim expenses related to my rental property remodel if I didn't earn any revenue in the same year?

[jason107]

For the past several years, I had a rental property set up, and I claimed depreciation & expenses along with the associated rental revenue.  In 2022 I didn't have an revenue because I spent the whole year remodeling.  I have significant remodeling expenses for 2022 but zero revenue.  When TurboTax asked if I have revenue I said no, so it completely removed the rental property from the return and now I can't figure out how to get it back.  How do I get it back on the return, and can I claim the significant remodeling expenses if I didn't have any revenue in 2022?  Thanks in advance for any help!

[MinhT1]

If you spent the whole year remodeling your rental property then the property was not available for rental in 2022. As it is not on the rental market, you are not allowed to deduct any rental expenses.

In general, remodeling costs are improvement costs which must be capitalized and depreciated when they are placed in service. They cannot be expensed like repairs.

The IRS says in this Publication:

Repairs and Improvements 

Generally, an expense for repairing or maintaining your rental property may be deducted if you aren’t required to capitalize the expense. 

Improvements. 

You must capitalize any expense you pay to improve your rental property. An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. 

[jason107]

Thanks for the info.  That all makes sense.

How do I go about capturing those improvement costs?  Do I need to record those costs anywhere on my 2022 return when they were incurred (even though I can't claim them as an expense), or do I wait until the place is rented again in 2023, and then put them on my 2023 return?

I'm also wondering, when I do start claiming rental expenses again, how do I get my old rental records back from TurboTax.  I had the depreciation all set up and it was almost automatic from year to year.  Now it's gone.  When I start renting that property again, how do I reconnect to the previous records?

Thanks again!

Jason

[DianeW777]

You begin claiming rental expenses as soon as the property is available for rental use.  The combined cost of improvements is entered as one asset on the date you place the property in service for rental use and advertise as such.

You will need to get a copy of a prior year return to add your original assets back to the current return if they were taken out of service.  You will enter them exactly as they were originally entered.

[jason107]

Thanks for the reply! 

Just to be clear.... I rented the property and claimed the revenue, expenses, and depreciation for the property for several years through part of the 2021 tax year.  I spent the entire 2022 tax year remodeling and did not try to rent at all.  Remodeling is done and I will start renting again in 2023.

What I'm hearing you say is that I don't have to enter anything pertaining to the rental property for my 2022 return.  In 2023, I can start claiming the revenue, expenses, and depreciation again and I will just be prompted to enter some of the values from my 2021 return.  Is that correct? 

When you enter a rental property in TurboTax, is there an option to select "re-renting" or "re-activating" a previous rental?

Does the 2022 remodeling cost reduce my future tax burden for 2023?  How exactly is that captured in TurboTax?  Does it ask how much you've spent on improvements?

Sorry to ask 1000 questions.  I just want to make sure I don't lose out on tax benefits from the $40k I've spent on improvements.

Thanks in advance.

[ThomasM125]

You will enter the assets like you did originally, with the original cost and date put into service. TurboTax will suggest the depreciation for prior years and you will have a chance to modify the amount suggested. It may be off for the one year you didn't rent the house, so you may have to subtract one year's worth of depreciation from the amount listed.

For the work you did in 2022, you will enter those expenses as assets using the category of Rental Real Estate Property or Tools, Machinery, Equipment,  and Furniture. There will be subcategory choices for Machinery, Equipment and Furniture. Your depreciation number of years will very from 27.5 years for real estate improvements to seven years for furniture. You will get a portion of your 2022 improvements in the form of depreciation expense in 2023 when you start renting the property again.