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MJ-RR
Returning Member

Vacant rental property for entire year due to extensive repairs.

What if the rental was vacant all year to do extensive repairs? The previous long term renters did extensive damage that required a complete remodel to eliminate black mold throughout the house, replace damaged cabinets, replace all flooring, remove and replace drywall etc. The repairs will improve the property since the cabinets, flooring, fixtures etc. will be new, but the repairs were necessary due to the damage and mold. To complicate it, so that I could save travel time from my primary residence to the rental I have been living in the house while I do all the work. For background the property has been a rental for over 25 years and the last tenants had been in it for 23 years.  It is the only rental I have and I am also considering the option of selling it after the repairs are complete (by the time I'm done it will have been vacant for over 2 years).

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2 Replies
Carl
Level 15

Vacant rental property for entire year due to extensive repairs.

I have a few comments to clarify things for you, then I have a question that you "need" to answer before I can provide any sort of definitive and useful guidance for you.

To complicate it, so that I could save travel time from my primary residence to the rental I have been living in the house while I do all the work.

That doesn't complicate anything at all. You did not live in the house as your primary residence, 2nd home, vacation home or any other type of "personal pleasure" use. Your primary reason for being there was to get the work done. Period. Therefore you have not lived in the house for one single day as your primary residence, 2nd home, vacation home or any other personal pleasure use. Your days of "personal use" is still ZERO.

(by the time I'm done it will have been vacant for over 2 years).

Give me dates. I need clarity here if it was two "FULL" calendar years, or if a few months of the 2020 tax year is included in that "two years" not rented.

How did you report this on your 2018 tax return? Did you do anything "such as" concert the property to personal use on the 2018 tax return? Did you indicate on the 2018 return that you rented it for less than "the whole year"? (I hope not, but if you did, I need to know that.)

I need you to check something on your 2017 tax return and your 2018 tax return. There's an IRS Form 4562 in the package for each of those years for that specific property. It will print in landscape format and there are actually two 4562's for that property for each year, that print in landscape format. The one I want you to look at for each tax year (2017 and 2018) is titled "Depreciation and Amortization Report". For both 2017 and 2018 is the "current year Depr" the same for both?

Overall, if you elect to rent this property out again in 2020 and are successful in doing so, your tax life will be much simpler.

On a final note (up to this point) from what I see and understand in your post, you don't have one single repair or maintenance expense. Not a penny. Everything you've talked about is a property improvement. Overall, this is a good thing for you. However, you will not enter these property improvements on any tax return until the tax year you do one of two things:

1) Rent the property out to a new tenant.

2) Sell the property.

So as it stands at this time, you will not enter "any" of your costs on your 2019 tax return. But that does not mean you still won't have things to report on SCH E on your 2019 tax return.

Depending on what you did on the 2018 return, it's perfectly possible that the TurboTax program just flat out can not handle the situation. But I won't know for sure until I have more detailed facts.

MJ-RR
Returning Member

Vacant rental property for entire year due to extensive repairs.

The previous renters moved out on Dec 31, 2018, so Jan 1, 2019 is when I started the restoration and I am still working on it so all of 2020 so far.

I have was not converted to personal use in 2018, if I do so for 2019 will be based on how it affects my tax burden and/or if I decide to sell it.

 

The "current year Depr" is $1.00 higher in 2018 than 2017, the property has been using S/L depreciation method since first converted to a rental.

 

foot note:  I have used TurboTax the entire time so it has done the all depreciation calculations.

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