Sale, for a loss, of a 2nd home converted to rental property 1/1/2016 but not rented before sale

[chris34]

1. If I didn't live in the house in calendar year 2016, can I consider the home a rental property if I considered renting it before selling it, but ultimately sold it without renting it?
2. If so, can I report the loss as negative income, and if so, how much?

[TomD8 · Accepted solution]

If you never had a tenant, the IRS won't consider the house rental property unless you can prove you made a bona fide attempt to rent it, e.g. by advertising it as available to rent, listing it as a rental with a real estate agency, etc.

[chris34]

Interesting. I don't see anything on the IRS website that says that a property: 1. has to have been rented to declare it a rental property, or 2. has to have been listed with a real estate agency (i.e. "bona fide attempt") as a rental.  In my case, I had a potential tenant lined up (family member), but decided to sell when I got the offer. IRS website seems to say that the conversion takes place whenever "the property is ready for its specific use as a business property".

[TomD8]

The IRS criteria is that the property becomes rental property "from the time you make it available to rent."  See this:
"You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent."  <a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p527/ch01.html#en_US_2016_publink1000218979">https://www.irs.gov/pu...>

This reference shows how one Tax Court interpreted the rules in 2015:  <a rel="nofollow" target="_blank" href="https://www.forbes.com/sites/anthonynitti/2015/05/20/tax-court-in-order-to-convert-a-home-to-a-renta...>

If you treat the home as rental property on your tax return, the referenced court case may give some insight into how the IRS might challenge you if you are audited.

[chris34]

That hurts, but thanks for all the info.