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Rental Property - no income all year, do I deduct repairs and depreciation?

Hi, I have a rental property that I am 50% owner and we evicted the tenant at the end of 2022.  In 2023, we did not have it rented out as we were performing major repairs and cleanup. 

 

Question #1

The type of repair was to repair the basement wall that was caving in due to defective bricks used during that time period.  Is this considered an "improvement" or a repair?

Question #2

Do I deduct the cost of the repairs and depreciation for calendar year 2023 or include that in 2024 when I file?  

 

When the Turbotax Desktop walked me through, it sounded like it should be done in 2024, the year that we are selling the property (or if it was rented again and had income).  But when doing the final check on my taxes, it was asking about the property again and wanted to complete a Schedule E as if I had not completed those questions.  It's has me confused.

 

I should also mention that this property is in another state.  This is the first year that we have not had any income on it.

 

Hoping someone more knowledgeable can help.

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1 Best answer

Accepted Solutions
DianeW777
Expert Alumni

Rental Property - no income all year, do I deduct repairs and depreciation?

It depends. The expense to repair the brick wall to stop a cave-in situation seems like a capital improvement, however, you can use cost and life expectancy to make final determination.  If you decide it is a capital improvement then it will be depreciated like the rental as 27.5 year recovery period.

  • The calendar year when you should use these expenses is the year the rental was available for rent, if that was 2023, then you should use them on your 2023 tax return. If your intent is to rent it out as soon as it's ready you can continue to depreciate the existing assets.
  • If on the other hand you do not plan to rent it, then you may want to convert it to personal use until it is available to rent again since the period is extensive. You could remove for personal use on January 1, 2023.
  • During any period where the property is not available for rent then the regular operating expenses are also not deductible during that tiime.
    • You must decide based on the information provided.

See IRS Publication 527 (search vacant).

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.

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 isn’t held out and available for rent while listed for sale, the expenses aren’t deductible rental expenses.

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3 Replies
DianeW777
Expert Alumni

Rental Property - no income all year, do I deduct repairs and depreciation?

It depends. The expense to repair the brick wall to stop a cave-in situation seems like a capital improvement, however, you can use cost and life expectancy to make final determination.  If you decide it is a capital improvement then it will be depreciated like the rental as 27.5 year recovery period.

  • The calendar year when you should use these expenses is the year the rental was available for rent, if that was 2023, then you should use them on your 2023 tax return. If your intent is to rent it out as soon as it's ready you can continue to depreciate the existing assets.
  • If on the other hand you do not plan to rent it, then you may want to convert it to personal use until it is available to rent again since the period is extensive. You could remove for personal use on January 1, 2023.
  • During any period where the property is not available for rent then the regular operating expenses are also not deductible during that tiime.
    • You must decide based on the information provided.

See IRS Publication 527 (search vacant).

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.

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 isn’t held out and available for rent while listed for sale, the expenses aren’t deductible rental expenses.

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**Mark the post that answers your question by clicking on "Mark as Best Answer"

Rental Property - no income all year, do I deduct repairs and depreciation?

Thank you!

 

After the tenant moved out, we made all the improvements, including replacing carpet, painting and fixing that wall in order to sell the property.  It's in escrow right now and final signing is in a little over a week.

 

Based on the information you provided and going back through TurboTax, looks like I should completely delete it from the 2023 return.  This is what I had done, initially.  I will include it in 2024 return to report the sale and at that time can include the capital improvements.

 

TurboTax message:
"Since this property was not a rental at all in 2023, you should delete it as a rental.  Make sure to keep your complete return, including the Depreciation Report for this property from 2022 (or the last year was used as a rental).  You'll need that information when you sell the property or convert it back to a rental."

DianeW777
Expert Alumni

Rental Property - no income all year, do I deduct repairs and depreciation?

Yes, that's the right plan.  Be sure to include all of your capital improvements when arriving at a cost basis for the sale. You will need the full amount of depreciation expense that was used and below are the steps you can use in 2024 to record your sale without entering all of the assets back to your tax return since they have been removed.

 

  1. Wages & Income or Business Income (TurboTax Desktop)
  2. Scroll down to Other Business Situations or Less Common Business Situations (TurboTax Desktop)
  3. Select Sale of Business Property
  4. Select Sales of business or rental property that you haven't already reported.
  5. Answer 'Yes' to Do all of the following apply...?
  6. Enter your sales information, do not make an entry for depreciation (no zeros)
    1.  Description of the Property (Second Home/Previous Rental Home)
    2. Sales Price/Sales Expenses 
    3. Date acquired and date sold
    4. Sales Price
    5. Cost
    6. Depreciation

                     

@meanjeanslo88 

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