short term rental deductions while renovating

[jrschatz]

Hello-

We own a vacation property that we have been actively managing as a short term rental for the past two years and filing as such on our Schedule E. 

My question involves our potential plans to do some large renovations on the property that would essentially take it off of the short-term market for the current calendar year (2024).  What would be the tax implications (as far as expenses incurred during the year) for a property that was previously placed into service but is currently unavailable for rent due to renovations/repairs?

[tagteam]

See https://www.irs.gov/publications/p527#en_US_2023_publink1000219042

Idle Property

Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it isn’t available for rent.

Retired From Service

You stop depreciating property when you retire it from service, even if you haven’t fully recovered its cost or other basis. You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events.

• You sell or exchange the property.

• You convert the property to personal use.

• You abandon the property.

• The property is destroyed.

[jrschatz]

thank you -- this is clear for depreciation, how about other expenses (utilities, taxes, insurance etc) during the idle period?

[tagteam]

You'll get more than one opinion (answer) to your question, but mine is simply that if the property is available for rent (in any condition), then rental expenses can still be deducted. 

Another answer would be that you could add those expenses to the cost of the renovations and then capitalize the entire project (i.e., depreciation deductions for the total renovation cost).

[jrschatz]

great point- thank you. I also found a similar question/answer in the community here:

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/can-i-claim-the-expen...

[AnnetteB6]

Reading the answer you referenced brings up a good point.  When you are entering your information in TurboTax for the rental property, the program will ask if it was rented all year.  Your answer will be 'no', but if you enter the number of rental days as zero, then TurboTax will want you to delete the property altogether.  Plan the renovations so that there are some rental days during the calendar year.  Also, continue to advertise the property for rent through the renovations.  Since it is a vacation rental, you should be able to keep it available for future dates.

@jrschatz