If a new home owner bought a two family house and tried to rent one of the units but was unable to, Can they apply for rental loss using schedule E? If so, What would they put on Rents received, repairs, supplies, utilities and depreciation expenses sections if they never rented one of the units before? Will they get audited and penalized for using schedule E?
You may deduct all the items you mentioned without having any rental income on Schedule E. However, you must have documentation to show that the unit was available to rent and what actions you took in an effort to rent the unit. You may get audited, if you are you must be able to show it was your intent to rent the unit or your deductions will not be allowed. You will not be penalized for using Schedule E.
Sign in to your TurboTax account and follow these steps to enter your rental information on Schedule E;
Thanks Leonard, what is an acceptable proof of advertisement for the rental unit? What happens if I lost or can’t prove the receipts? Is there a penalty or they just simply ask to pay back what I saved?
You would need something that would show the property was listed for rent. This could be from an online source or a newspaper. If you can't prove that you were actually trying to rent the property, the deduction from income that you had from the rental loss would not be used as an expense and you would owe some money for the additional taxable income that you had with the loss from the rental.