Rental Out of Service

[Lance Emerson]

I have a client who owns residential rental property. His tenants were way behind on rent and he evicted them. They trashed his building. Between the back rent and the time it took him to repair the building, he showed zero rental income for 2004. Can he continue to deduct normal operating expenses like utilities, depreciation, etc., or is the rental considered taken out of service for repairs? Do you take the expenses as investment expenses on Schedule A, or continue with Schedule E?

-lance

[Ned]

Why would it be any different than a business vehicle in the repair shop? You continue to depreciate assets while they are being repaired. Same with the rental. It is being repaired. It was not taken out of service. So continue to deduct expenses.

[Scarecrow]

audit

I had an auditor claim you can't deduct the expenses while the rental unit is taken out of service for repairs. He couldn't come up with any code or regulation to support his claim, other than his supervisor told him to do it that way.

He backed down when he found out the unit was available for rent before the end of the year. But even if it wasn't available for rent before the end of the year, there is no rule I no of where you stop deducting expenses for an asset temporarily taken out of service for repairs.

caw

[Chuckdday]

rental property-no income

As long as the propertry is "rental" then normal operting expenses can be deducted. I would take pictures of the "For rent" sign on the property until it is rented. chuck dday

[jainen]

move in yourself

If he was adding a second unit or something that would lead to a different kind of use that
would be a different matter. Otherwise I agree that it continues to be business property during temporary maintenance and repair, as long as it is ordinary and necessary and the property is genuinely for rent at market rates. A common but unacceptable ploy is to do extensive remodeling, then triple the rent, then say because you can't find a tenant you will have to move in yourself.