How to count days spent improving vacation home?

[shopper]

Purchased vacation home in June, spent July & Aug furnishing the house and adding a deck and shed.  Rented 35 days Sept through the end of the year.  I'm looking for clarification on the days spent "improving" the home in Jul/Aug.  When dividing personal vs. rental expenses, is it personal until Sept when we offered it for rental, then we divide the remainder of the year btwn personal and rental use? I'm confused by Pub 527 statement: "Any day that you spend working substantially full time repairing and maintaining (not improving) your property isn’t counted as a day of personal use" because they make the improvement time sound different without telling you what to do with it.

[JulieR]

Did you actually use the rental for personal purposes during the year (if so how many days) or was it unoccupied during the period of renovation?

[shopper]

unoccupied except for us on the weekends bringing in furniture, decorating, working on deck, etc

[JulieR]

Start counting your "personal use days" after the rental was placed in service in September.  The idea is that you are dividing the home's expenses between rental use and personal use for the period of time during which the home was used as a Rental (Sept. through Dec.) and only the expenses that pertain to the Rental will be deducted on the Schedule E.  

You may take the full deduction for mortgage interest and property taxes applicable from June through August and the personal use apportioned amount from September through December of on Schedule A, if you itemize your deductions.

Please comment if you need additional help with this.

[dr27405]

I'd like to piggy back on this question and ask if the rental property was offered for rent from Jan1 to April 30th, then taken off rental market for a major renovation and improvement through October 31, then back offered for rent for the remainder of the year, how should I report the days?  During the end part of renovation period we stayed in the property doing repairs, maintenance and working on obtaining a permit to be allowed to continue to rent property after a new law was passed.  We spent days meeting with attorneys, filing paperwork, following up on the paperwork and meeting with local authorities to grandfather the property so that we could continue renting it once the renovation was complete.  What is the best way claim the days on Schedule E?  Are the days rented from Jan 1 to April 30th and Nov 1 to Dec 31st?  Do I have to claim any of the days I stayed at the property working and obtaining the permits personal use days?  Thank you.

[RobertG]

The days you stayed on the property to complete the renovation are not personal use days.  

The number of days rented at fair market value are the number of days it was available for rent.

So you have no personal use days, but it was rented just part of the year.  The business use rate is 100%.

IRS Publication 527

@dr27405

[jonath1021]

If the renovation counts as an "improvement" rather than a repair, wouldn't I have to count the days I was at my rental home as personal days even if I was there managing the improvements?  IRS 527 states that days used for repairs and maintenance do not count as personal use days, but does seem to imply that days spent working on improvements do count as personal days.  I don't have any expertise in this area but that seemed to me to be what 527 says. 

[KathrynG3]

The definition of improvement v. repair is more pertinent regarding whether or not to capitalize the cost or expense it. If it is capitalized, it must be depreciated whereas an expense can be claimed in full. TurboTax will walk you through recording any expenses or improvements.

See: What is rental depreciation and how does it differ from an expense?

Regarding personal use days, the days you stayed on the property to complete the renovation are not personal use days.

See 2020 Publication 527, page 18, column 2 and page 5:

Improvements:

An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use.

Betterments:

Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property.

[jonath1021]

Thanks so much for responding so quickly.  I'd love not to have to count days on improvements as personal use days (in my case, our patio collapsed and we had to go to the property get bids, hire contractors, supervise, etc).  What's confusing to me is that the citation in your response says:

"Days used for repairs and maintenance.

Any day that you spend working substantially full time repairing and maintaining (not improving) your property isn’t counted as a day of personal use."

I don't know this area at all, but the parenthetical reference -- "(not improving)" -- is confusing to me because it seems to imply that if I spent those days on improvements rather than repairs, those would count as personal use days.  If I did not count them as personal use days, is there something I could cite to the IRS if they later questioned why I did not include these as personal use days.

[KathrynG3]

It is taxpayers' rights to interpret the law in their favor when the guidance is not completely clear.

It is ultimately your decision how to classify the patio, as a repair or, if substantially enhancing the property, as an improvement. In regards to responding to a potential IRS inquiry, Publication 527 would be the main resource to cite.

Publication 527 does provide parameters for interpretation to apply to your circumstances.

If the property does typically have personal use more than 14 days, see page 17 of Publication 527 for more information on how to allocate rental expenses.

[Edited 05/12/2021 | 9:29 AM PST]

@jonath1021

[movinit56]

To refine the question even further.  I know that if I am maintaining the property that is not a personal use day.  Is that day of maintenance considered a "day rented at fair market value?"  I have to divide my personal days between rented days and can only deduct expenses by that percentage.  If I leave OFF the maintenance days that seems to put me at a disadvantage.  How do we count maintenance days so in the total day counts?  Thank you.

[MaryK4]

You can include the maintenance days as rental days.

Any day that you spend working substantially full time repairing and maintaining (not improving) your property isn’t counted as a day of personal use. Don’t count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. (Days used for repairs and maintenance.)

@movinit56

[movinit56]

Thank you!  That makes sense.

[DaveLaQ]

>>You can include the maintenance days as rental days.<<

This doesn't sound right. Pub. 527 keeps using the phrase, " ...total days rented to others at a fair rental price." Under this definition of rental days, maintenance days would not be included. It matters, because it will change the ratio of rented-to-personal-use-days. In my understanding, maintenance/repair days simply do not count toward anything in the figuring of deductible expenses on a rental property.