Rental Property with expenses but no income

[consulting19]

I have rental property that was being remodeled in 2019 and therefore not rented.  This rental property was then sold at the end of 2019. I still have basic expenses including insurance, property tax, and electric/gas but no income.  How do I account for these expenses in turbo tax without rental income for the year?  I have the basis for the gain on sale but need to understand how to account for expenses not associated with the sale but incurred while remodeling.

[ReginaM]

A property that's held as a rental during improvements or while being sold, can still be reported as a rental on schedule E. This allows you to carry forward any losses and deduct certain expenses with maintaining the property.

The IRS specifically allows this type of reporting. This is clarified in IRS Publication 527:

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.

[Carl]

The property remains classified as Residential Rental Real Estate. When you start working through the property do not (*NOT*) select the option for "I did not rent or attempt to rent this property in 2019". If you select that option, then the program will *FORCE* you to delete that property entirely. So don't do that.

For "days rented" (if asked for this) enter a 1. For rental income, you can't leave it blank. So enter the digit ZERO for rental income.

Any rental expenses incurred can and should be entered.

Any property improvements done after the last renter moved out are still entered in the Assets/Depreciation section. However, for those improvements you will indicate zero percent business use. If the program "insist" on a percentage of use greater than zero, then just make the "in service" date the date you closed on the sale, and the business use percentage at 1%. Try 0.1% if it'll accept that value. Basically, you need to add any property improvements so as to show the increased cost basis on the property, prior to reporting the sale. This in effect, reduces your taxable gain on the sale, or increases your losses on the sale if sold at a loss.

When you report the sale, all of your carry over losses including your 2019 rental expenses will be deducted first from any taxable gain realized on the sale, and then from other ordinary income (such as W-2 income).

[PA-A]

Carl-- Does this also apply for a period when improving a home for rent (but not subsequently selling)-- the part about the program and putting 1 for days and $0 for rent to allow to list the expenses/losses?

[Carl]

Does this also apply for a period when improving a home for rent

No. Expenses incurred in preparing the property for rent for the *very* *first* *time* are not deductible. DO NOT confuse this with property improvements.

Basically, repair and maintenance expenses incurred "before" the property is placed in service are just flat out not deductible. That would be things like utility bills, lawn care, fixing the broken garage door because it won't open, etc.

The property is in service on the first day a renter "could" have moved in. That is also the same day the "days rented" count starts. This is usually the day you put the FOR RENT sign in the front yard. If on that day a potential renter walked up to you with the deposit and first months rent physically in their hand, gave it to you and you accepted it and they could starting moving in at that very minute, then the property is "in service" on that date.

[Home Fires]

Thank you! I was starting to wonder if I needed to just put $1 for income so it would be still kept as a property for 2020. I will enter $0. This advice addresses my exact problem. Really appreciate this answer. 

[BebeT71]

Does this apply if no income was due to the Coronavirus shut down 2020?  Can I still report depreciation & expenses with 0 income?

[Critter-3]

Yes you can however in the program you MUST enter 1 day of rental activity or the program will delete the information on you.  

[bevnews1]

Carl,

Two related questions:

1.  Does this also apply to commercial real estate, such as office condos?

2.  In my particular situation, a piece of property that was rented for 14 years suffered the collapse of an exterior walkway, and therefore could not be rented until the walkway was replaced.  Are all normal operating expenses -- property taxes, condo fees, mortgage interest, etc., -- deductible?  Or do they have to be added to basis?

(The property received its use and occupancy permit on Dec. 4, 2021).

[Critter-3]

1.  Does this also apply to commercial real estate, such as office condos?   Yes.

2.  In my particular situation, a piece of property that was rented for 14 years suffered the collapse of an exterior walkway, and therefore could not be rented until the walkway was replaced.  Are all normal operating expenses -- property taxes, condo fees, mortgage interest, etc., -- deductible?  Yes  carrying costs are still deductible on a commercial rental.

Or do they have to be added to basis?  Only the improvements need to be added as new assets for depreciation ... do NOT adjust the currently depreciating basis. 

[bevnews1]

Perfect!  Thank you!

[Terr Sark]

Hi Carl, 

question - what if I purchased the property and was renovating during the year but did not have a renter in by the end of the year? Can those expenses be deducted. The expenses include - new floors, cabinets, counter tops etc? I followed the steps of stating 0 days rented and it allowed me to enter my expenses.  
 
thanks 

[MayaD]

You must increase the basis of the property by the cost of any additions or improvements made before placing your property into service as a rental that have a useful life of more than 1 year.

Those improvement should be entered as separate Rental Assets and are subject to depreciation. 

For more information please check How do I handle capital improvements and depreciation for my rental?

[atufarie]

How does one handle the expenses of rental property remodeling prior to the receipt of any rental income in that year?

[AmyC]

If the property has been a rental and the activity is paused for remodeling, continue carrying your expenses and add the remodel cost to your depreciation schedule. If the property has never been rented, the remodeling costs will be added to your basis when you begin renting the property.

@atufarie