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Level 1

Rental expenses while vacant and listed for sale and/or rent (which ever came first) and then rented...

Last year, rental property put up for sale and/or rent (which ever came first). The rental property was rented for the first 6 months, vacant the next 3 months, and then rented for the remainder of the year.

Someone asked a similar question and someone replied to their question as it being okay to deduct all expenses since they did not sell...

However, I came across the following on this link: http://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.

Vacant while listed for sale. If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses."

So, I'm assuming since I had the rental property available for rent while listed for sale, I cannot deduct any of the expenses I normally deduct while it's rented?

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Level 1

Rental expenses while vacant and listed for sale and/or rent (which ever came first) and then rented...

Grey area - you say the house was "put up for sale and/or rent (which ever came first)". Was the Primary intent to rent or to sell it? Matter of judgment - if primary intent was sale, then technically your conclusion is correct - "cannot deduct any of the expenses I normally deduct while it's rented".

You could also take the position there was no Primary intent either way, and as such, since it was available for rent, I would deduct all of the expenses for the whole year as being attributable to rental activity.

I hope this helps you make a decision.

4 Replies
Level 1

Rental expenses while vacant and listed for sale and/or rent (which ever came first) and then rented...

Grey area - you say the house was "put up for sale and/or rent (which ever came first)". Was the Primary intent to rent or to sell it? Matter of judgment - if primary intent was sale, then technically your conclusion is correct - "cannot deduct any of the expenses I normally deduct while it's rented".

You could also take the position there was no Primary intent either way, and as such, since it was available for rent, I would deduct all of the expenses for the whole year as being attributable to rental activity.

I hope this helps you make a decision.

Level 1

Rental expenses while vacant and listed for sale and/or rent (which ever came first) and then rented...

I don't agree.  Whether the owner wanted to sell the property more than renting it is irrelevant, as long as the property was really available for rent: appearing in rental listings, having a For Rent sign, etc.  The expenses are not deductible rental expenses if the property is not available for rent.  Conversely, since the property was available for rent, the ordinary and necessary expenses would be deductible.
Level 1

Rental expenses while vacant and listed for sale and/or rent (which ever came first) and then rented...

Would help if there was a confirmation from a CPA or other source document thru the IRS. Publication 527 is technically the official word and says no deduction for loss of income due to vacancy. There is no other reading of that regulation in that document.
Level 1

Rental expenses while vacant and listed for sale and/or rent (which ever came first) and then rented...

The IRS guidance is more of direction to avoid double dipping.  If the property is sold, then you can take those expenses as part of the basis/expense of sale.  If it is rented, you can take them off on Schedule E.  But, you can't take them both places.  

As far as "loss of income due to vacancy," this is simply stating if the property sits unrented for say 3 months, and you normally rent it for $1000/month, you can't take a $3000 deduction for the rent you didn't get.