How to deal with a rental under repair?

[skycamper]

My dad has 7 rentals and they keep him busy but at 73 yrs old hes slowing down. Two of them have fallen in disrepair and are vacant while he repairs them at a very slow pace.   Meanwhile, he pays the utilities, mortgage, repair costs, and improvements. 

In this case Im helping him catch up on taxes and this is for tax year 2021.  Both properties were not rented to tenants at all for 2021.  TT asks "was the rental rented all year and at a fair rental price? "

In this case do I just say rented all year and yes to the fair rental price?  If I mark no, it goes into personal use which is not what he used it for. Also, there is a box for "not rented all year"  If I check that box it states to consider removing it as a rental.   

What do I do here?  I want to deduct all the normal expenses since the unit is losing so much money. 

[M-MTax]

Temporary vacancies are OK if the property was available for rent.

[skycamper]

Even if it lasted the whole year and included squatters? They damaged the whole house!  After I’m done with his 2021 taxes, I need to move onto 2022 and he’s telling me that it was not rented in 2022 at all either.  I don’t dare ask about 2023 but I do think he has a renter in there at this point.  

[skycamper]

But am I Correct in marking that it was available for rent and at a fair rental price?

[tagteam]

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@skycamper wrote:

But am I Correct in marking that it was available for rent and at a fair rental price?

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Yes, provided that is actually, in fact, the case.

[KJS]

A property that's held as a rental during improvements or repairs, can still be reported as a rental on schedule E. This allows you to carry forward any losses and deduct certain expenses with maintaining the property.

The IRS specifically allows this type of reporting. This is clarified in IRS Publication 527:

Vacant rental property.

If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. However, you can’t deduct any loss of rental income for the period the property is vacant.

 To deduct these expenses in TurboTax, 

• Enter a 1 in Days Rented and 0 in Personal Use
  
  
•  
•  There must be a value entered in the Rental Income box so, enter ZERO.
  

• Doing this will get you to the interview screens where you can enter the expenses associated with maintaining the rental property.

[skycamper]

Outstanding, I will try this!  Thank you so much. It was very confusing since the home is not rented at all.  My dad wanted to deduct his rental income losses but I knew that was not possible, only the rental expenses and depreciation.     

I really appreciate this!

[skycamper]

what about squatters who are not paying rent? We have a home with a 2 year squatter !  My dad is lost on what to do and actually only recently revealed this to us!  

[DoninGA]

@skycamper Squatters are a legal issue that you will have to resolve.  However, the loss of rent cannot be entered as an expense for the property.

[KJS]

I am so sorry to hear that you and your Dad are having to wrestle with the situation of having a squatter not paying rent!
From an earlier post, you seem to be aware that you cannot claim the loss of potential rental income resulting from these squatters as an expense on Schedule E.

Technically, the squatters are non-paying renters for the Sch E so, complete it in TurboTax as I outlined above. I wish I could offer you more than how to make TurboTax align with IRS in this type of situation.

Your father needs to engage the services of a Real Estate Attorney who is familiar with the laws of his State, County and Local jurisdictions.

This will help with both the eviction process and also documenting his efforts for the IRS should the need arise upon examination of a return or sale of the property .

[skycamper]

Thanks, I was not going to , just the expenses for utilities that we pay,  clean of the outside since the squatters produce alot of trash,  mortgage expense, regular depreciation, and some repairs the squatters have allowed us to take care of.

[skycamper]

Thanks!  My dad is working with an attorney finally,  my dad procrastinates alot and he can't afford to at all.  He has no money and seems to have alot of problems confronting things like this head on.  But I'm trying to help him get back to where he needs to be.