How do I deduct expenses on single family house bought for investment years ago, never rented, always vacant.?

[daves27]

I bought a couple single family houses for investment and held them for years, always vacant, and no attempt to rent them out.

1. How do I deduct/report the expenses (property taxes, monthly utilities, repairs, improvements)?

2. And, what about depreciation?

3. How to handle all the above if a house was vacant for a year, rented for a year, then vacant for several years with no attempt to rent out?

[MartyG]

Hi daves 27,

To answer your questions in order:

1.  You can deduct property taxes on both of the houses (assuming you don't go over the $10k state tax limit) as an itemized deduction.  As for interest, the rules say that you can deduct mortgage interest on your "main" home and one other.  So if you pay mortgage interest on your personal residence, you can deduct that and then the interest on only one of the two investment homes that you own as an itemized deduction.  

2.  No depreciation if you are not renting it out.  You can only take depreciation on assets that are "placed in service".  Holding it empty for investment reasons is not "placed in service"

3.  For the rented year, you would take all expenses (depreciation, taxes, interest, and all other rental expenses) and income on Schedule E.  For the other years, it depends on intent.  If in any of the "vacant" years, it was the intent to rent it (you had ads out, just no one bit) then you can still deduct your expenses on Sch E.  However if in year one, and year 3-now, there was no intent to rent, then 1 and 2 above apply.

I hope this helps.

Marty