Rental property: Next year we will be doing remodeling and little income will be coming in. Do we continue to report it as a business anyway, with remodel expenses exceeding rents coming in?

[jobejobie]

great question! hope this one gets answered

[NateTheGrEAt · Accepted solution]

Hi lawermuth,

That's a great question. 

If you rent the property at all during the year you definitely need to report it as a rental property. 

Depending on the nature and extent of remodeling, you might be able to deduct the expenses, or you might be required to capitalize them and depreciate them. 

See "Can I deduct improvements and repairs" in this article: Real Estate Tax and Rental Property - TurboTax Tax Tips & Videos (intuit.com) for some discussion. This link: How do I handle capital improvements and depreciation for my rental? (intuit.com) has instructions on how to enter remodeling expenses that are capitalized. 

In general the rule is that if the expenditures

• add to the value of your rental property
• prolong its useful life, or 
• adapt it to new uses

they must be capitalized and depreciated, rather than expensed (deducted in the current year). 

I hope this information is helpful!

[lawermuth]

Thank you for your reply. Very helpful!