How to split the expenses between rental loss and selling expenses for my residential rental property?

[wendyle1993]

We tried to rent our residential rental property at the beginning of 2025, but could not find a tenant, so we decided to sell it.  We signed the listing agreement with the broker in May, and sold it in Sept. Should we split the property tax, insurance, lawn care, HOA, etc., between the rental period and selling period, and go through the questions of rental sessions? Since we did not have rental income in 2025, is there any benefit to claiming the rental loss?

[ThomasM125]

It may not be advisable to deduct rental expenses since you did not rent the property. The IRS may take exception to that by arguing that it wasn't a legitimate rental, since there was no actual rent. However, if you had good documentation to prove you were actively engaged in renting the property it may be permissible to deduct the expenses as rent expenses. 

The rental loss would be an allowable deduction against ordinary income which may be taxed at a higher rate than capital gain income from the property sale. So, it may be a more beneficial deduction, but that would depend on several factors such as the amount of the property sale gain, the amount of your ordinary income and the amount of the rental loss.

Capital gains are normally caped at 15%, unless your income is in the $500,000 range. If your marginal federal tax rate is in the 22% range or higher, it would likely be beneficial to deduct the rental loss against ordinary income rather than have it included in with the capital gain from the property sale. You can use this Intuit Calculator to determine your federal marginal tax bracket.

[wendyle1993]

Are you saying that if we don't claim the rental loss, we can deduct HOA, insurance, property taxes, etc., incurred between January and September (it was sold in September) as part of the selling expenses? 

[AmyC]

It depends.

• If the house was not held out for rent, it is considered a second home or personal use property for that time before the sale and those carrying costs may go on Sch A (mortgage and taxes)  while repairs and management fees would roll into the selling price.
• If the house was for rent or sale during the year, all the costs are deductible. The IRS prefers it on the Sch E but they can be added to the expense of selling.

You need to go through the rental section in order to sell the property. 

• Go to property profile and mark sold
• Go to assets and sell every item listed.

You may need to mark $1 of income to get through the schedule. You can remove it before filing.

Since you are in the Sch E, if you did in fact hold the house out for rent, enter it in the expenses. 

The IRS allows these carrying expenses as part of the sales price, if it was held out for rent. Any loss is rolled into calculating your taxable gain. All prior year suspended losses are used to reduce gain.