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Level 1
February 13, 2022
Question

I sold a rental property last year. The house had no rental income while it was on the market. How can I deduct property taxes and other maintenance expenses?

  • February 13, 2022
  • 2 replies
  • 5 views
In previous years, I reported income vs. expenses.  This year, since the property was not rented and generated no income, TurboTax tells me that I do not need to report rental income.  But how can I report the property tax and other maintenance expenses, if they are deductible?

2 replies

Level 15
February 13, 2022

If your rental home is available for rent on the rental market, you can still deduct rental expenses such as mortgage interest, property taxes, maintenance expenses, depreciation..., even if you did not have renatal income.

 

In TurboTax, you enter the number of days the home was on the market as days rented, enter income as 0 and deduct rental expenses. You will have a passive loss.

 

When you sell y=the house, you can deduct all remaining suspended passive losses.

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Mike9241
Level 15
Level 15
February 13, 2022

the tax code written by Congress says that the property is out of service if you stop renting it. Expenses during this period are not deductible.  (only Congress can conceive of a situation where you have a tenant while trying to prepare and sell the property)  anyway there is an out IRC 266 and REG 1.266-1

here's an example from the reg

Example 1.
In 1956 and 1957 A pays annual taxes and interest on a mortgage on a piece of real property. During 1956, the property is vacant and unproductive, but throughout 1957 A operates the property as a parking lot. A may capitalize the taxes and mortgage interest paid in 1956, but not the taxes and mortgage interest paid in 1957.

 

and here is a subsection of the reg

(ii) In the case of real property, whether improved or unimproved and whether productive or unproductive:

(a) Interest on a loan (but not theoretical interest of a taxpayer using his own funds),

(b) Taxes of the owner of such real property measured by compensation paid to his employees,

(c) Taxes of such owner imposed on the purchase of materials, or on the storage, use, or other consumption of materials, and

(d) Other necessary expenditures,

 

conclusion : the expenses you incurred after you stopped renting are amounts that can be added to the cost basis

 

there must actually be an election included with your 1040  that you are capitalizing expenses pursuant to IRC 266. 

Mike9241