Rental Property Condo allowable expenses while in personal use to do repairs on the Condo unit.

[taxesohmy2017]

We own a home in SC which is our main residence and separately we have rental property on Myrtle Beach - it's a one condo unit.  In 2022 we received $18,359 in rental income. We had 159 rental days and 15 owners day and there was 191 days that the management company could not get to rent out.

We have a contract with the management company that collects the rent, advertises etc.  We do repairs on the condo ourselves if we can, to help save us money.

In 2022 the reservation report shows a column Stay Type and that 15 days were blocked for owners use.  Our Son who lives in IL came down in July, we have the exact dates and stayed at the Condo to do the repairs.  We had a leaking ceiling and damaged interior walls, so he stayed there and repaired the ceiling and walls so it can be ready for the next set of renters.  Would that be considered Personal Use still?

Rental Income: $18,359

Expenses:  $14,375

Depreciation: $4,127.00

which shows a loss for this year for ($143.00)

Our question is on limitation rental loss.  Our son did stay there to do the repairs so would that still be considered personal use? If so, they we would have to refigure the allowable deductible expenses?

Out of the 365 days:

Rental Days: 159

Owner Use to do repairs: 15

No Rental days: 191

what would the percentage be for us if we have to consider his stay as Personal Use. 
Would it be: 159 / (159 + 15) = .9137 = 91.37%  

OR

do you also include the non rental days: 159 / (350* + 15) = .4356 = 43.56%   

*Note: the 350 came from 159 rental days plus 191 non rental days.

OR we are allowed to take the $143 Loss because work was being done the entire time our Son stayed there for those 15 days.

Also, if the unit sits vacant because the management cannot get renters, we're still allowed to deduct the everyday expenses, correct? The management company advertises constantly to get renters in there. 

Thank you in advance for your assistance.

[tagteam]

A day of personal use does not include any day during which you are engaged in repair and maintenance on a substantially full-time basis, per Section 280A(d)(2)

See https://www.law.cornell.edu/uscode/text/26/280A

[tagteam]

Also see https://www.irs.gov/publications/p527#en_US_2022_publink1000285446

The foregoing is with respect to dividing expenses.

[taxesohmy2017]

I believe we are interpreting this correctly, that since our Son stayed at the rental condo to strictly work on the repairs this would not be considered Personal Use - correct? And since we are showing a $143 loss we are able to claim that loss on our tax return - Correct?

[taxesohmy2017]

Thanks for the info on the dividing expenses. 

We want to make sure we understand this as well. For our 2022 we don't have to worry about dividing expenses because we didn't use the condo for Personal Use - correct?

And for the 191 days that there were no renters, we still advertised and up keep, we can still deduct those expenses during that period as well - correct? And if we show a loss, we are able to claim that loss correct?

[tagteam]

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@taxesohmy2017 wrote:

.... our Son stayed at the rental condo to strictly work on the repairs this would not be considered Personal Use - correct? 

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Correct. The days your son spent working substantially on repairs do not count as personal use days.

[tagteam]

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@taxesohmy2017 wrote:

We want to make sure we understand this as well. For our 2022 we don't have to worry about dividing expenses because we didn't use the condo for Personal Use - correct?

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Correct. You do not have to be concerned with dividing expenses since there was no personal use.

Unfortunately, however, the net loss is still a passive loss and will be carried forward unless you have passive income that the passive loss can be used to offset.

Also, if your MAGI is under the income limit, you can deduct up to $25,000 of the loss against your other income.

See https://www.irs.gov/publications/p527#en_US_2022_publink1000219124

[taxesohmy2017]

The income we earned in 2022:

Wifes W2 = $23K

My Sch C showed a loss = ($1057)

Our combined was SS was $33.3K and $3678 was taxable

Rental Property showing a loss ($143)

So for 2022 we cannot take the $143 loss because none of the income listed above is not considered passive income correct? And we would carry forward the $143 to next years return. Correct? And if we have a profit in 2023 that 143 loss will be applied to it, what if we show losses we keep carrying forward until we can use it -  Correct?

Hypothetical question: we don't plan on selling the condo for a long time but when it comes time to sell it and the losses accumulated over the years because we didn't have passive income to apply it to, would those losses then be applied to the sale of the condo or applied to the gain if there is one or applied to recapture of depreciation? Just something we want keep in the back of our mind. 

And thank you for taking the time to answer our questions.  We greatly appreciate it.

[tagteam]

First of all, re your hypothetical question, all of your accumulated, suspended passive losses can be used in the year you dispose of the property (i.e., you sell it to an unrelated party for fair market value). Those accumulated losses can be used to offset gain on the sale.

Also, and more importantly, assuming you actively participate in your, rental, you should be able to deduct the $143 net loss since your MAGI appears to be well under the limit.

See https://www.irs.gov/publications/p527#en_US_2022_publink1000219124

[taxesohmy2017]

Thank you. After reading the publication, yes we would be considered active participation. We own 100% of the condo, we are not limited partner and we do the repairs or we are the ones calling and scheduling for repairs, we are in constant communication with the management company,  we attend the meetings in regards to bringing in more rental. So yes we feel 100% confident that we qualify as active participation.

Thanks again for all your help. We will be saving this post reference in the future.

Have an awesome day. Take care and thanks again.