vacant rental proerty

[bumpo]

Can TP claim the usual rental expenses on a vacant residential property that was not available for rent in current tax year due to the fact that the previous tenants "trashed" the property and substantial repairs were needed to make it suitable for rental use in the future. Is there any implied or specified time limit for such repairs to take place? i.e how many tax years can the client reasonably claim these expenses on a property which is not producing any income?

Thanks in advance for you help

[Burke]

I think it has to be "available for rent" in order to write it off as rental property. Perhaps a 30/60-day period to make certain repairs between tenants would be insignificant, but months and years would not fly.

[veritas]

I think

It may be possible to deduct expenses. There was a tax court case that sounds similar..

[taxea]

yes as long as the only reason it is not being rented is due to the need to repair the damage. All expenses qualify except for loss of rental income. Be sure to keep documentation you may need to prove expenses if it takes a while to repair.

[Kram BergGold]

agree with taxea

Take the expenses.

[Burke]

i.e how many tax years can the client reasonably claim these expenses on a property which is not producing any income?Thanks in advance for you help

I agree that an ordinary and necessary time to make repairs would not invalidate the use of rental property for tax purposes, but I would have a very hard time accepting "years" as reasonable. You could demolish the building and build a new one in 6 months. Mere vacancies due to inability to find a tenant is another matter. In that case, the bldg is available for rent.

[Roland Slugg]

Having to make repairs between tenants is a common problem when owning rental property, even in cases when a tenant "trashes" the place. I am not aware of any specific time limit mandated by the IRS or the tax laws for this. It would be extremely rare, though, for such repairs to take more than a few months, and certainly not "years" as you wrote in your post. If an owner keeps property off the market that long, he has probably removed it from service, either temporarily, such as to do a major remodel, or permanently, because he doesn't want to risk another trashing and plans to just hold the property for eventual sale. It becomes a facts and circumstances question.

If the property is removed from service, depreciation should cease at that time. It can resume when it's back in an active rental status. As for other ongoing expenses, interest and real estate taxes will continue to be deductible, but they would shift from rental expenses to itemized deductions, and the interest would be treated as investment interest and subject to the limitation on that. Other carrying costs should be capitalized.

If your client hasn't removed his property from service, but is just slow at making the repairs, I would continue to deduct depreciation and all normal expenses, even though the property may not actually be available for immediate rent during that time. I would characterize that time period as: "The property is available for rent, pending completion of necessary repairs." For most residential property I would regard six months as the approximate outer limit for such an "in limbo" status.

[Burke]

I could live with that. And I agree with the other issues re: deductibility of interest, taxes, and depreciation which will arise.