Rental property vacated due to tenant issues and repairs/improvements took rest of the year

[dgoldsmith]

We have a rental property in Virginia.  The tenant moved out the end of February 2021 and there was a lot of tenant attributed damage to repair.  While working on repairs due to tenant activity, we also discovered and decided to repair other structural issues that were not the tenant's fault.   The property remained vacant for the last 10 months of 2021 and repairs are still in progress.

Is it still considered a rental property for all of 2021 with limited income, some repairs attributable to Sch E and some considered capital improvements impacting depreciation and eventual capital gains and cost basis?

Or is it a rental property for a limited time (say until the end of April 2021) and then just a second property for us for the rest of the year?   It was not used by us or a tenant as an occupied residence after February.  Contractors and us have been over there at various times doing work but no one is living in it.

Does the treatment of the property for the remainder of 2021 have anything to do with intended use of the property once repairs are completed?  Options would be continue its use as a rental or sell it.

Thanks,

dgoldsmith

[DavidD66]

Yes, it is still considered a rental property.  You should treat it the same as you did when you had a tenant, you just won't report any income.  And yes, based on what you have described, you will have both repair expenses and capital improvements.  The way you treat the property for the period while it was vacant and undergoing repairs is affected by your intended use of the property once repairs are complete.  If you intend to sell the property when complete, it quit being a rental and you would treat it as an investment property.  You would stop depreciating, and most expenses would not be deductible, instead, they would be added to you basis.