Rental Expense

[Dude]

Single Family Residence rented for 90 days (Jan-March) in 2023. No personal use days for the rest of the year.

• Owner stayed in the property for two weeks while making repairs in June (no personal use days)
• Owner put the property up for rent in August 2023
• The owner did not find financially stable tenants and took the rental off the market in Sept.
• The unit stayed vacant the rest of the year pending financially qualified tenants arriving in 2024.

Questions:

1. Is the mortgage interest and homeowners insurance deductible for the entire year?

2. Are any maintenance expenses incurred after April of 2023 deductible? (I thought 1/12 of these expenses are deductible since it was on the market for one month).

3. Can any maintenance expenses incurred after April 2023 be carried forward as a loss? This is a no I think.

[Dude]

Ok, so the Owner showed me texts to prospective tenants indicating the unit remained available for rent from April through August. They only advertised it on Zillow for the month of August. In light of this non- capitalized maintenance is legit. Will not use mortgage interest or insurance or utilities for SEPT -DEC.

[BOB W]

My understanding, however limited, is that as long as t/p has the property listed with a real estate broker it is considered available for rent and all rental expenses would be deductible for that period. If self-renting , weekly ads would be required showing intent to get a tenant.

[Dude]

Thanks Bob

The IRS is clear and delineates personal use days from rental days. But l found little direction about the status of a house that just remains empty. Of course the property has to be available for rent but I cant find anything that specifically requires it to be listed on a web site or in a newspaper. Considering the liability of inadvertant discrimination and chaos involved with picking a tenant that is not financially sound enough to pay the rent, I can see justification in utilizing word of mouth advertising. In this case the landlord was talking with friends of his former tenant.

[BOB W]

So, you are saying the T/P has no proof of intent to rent out the property...??? Except for those days you can count a rented or available for rent.

[Dude]

He wants to rent it, but after putting it on Zillow, he only received applications from people with low or unverifiable incomes. Some people had multiple dogs, etc. He learned about a program at the local hospital that will submit your property to their incoming medical residents and interns after verification and property inspection. He liked this idea but had to wait almost a year for the application period at the hospital to open again. I thought, "It seems like a dumb idea, as he wasn't generating any income." Then he told me that his insurance company said they wouldn't cover damage to the property caused by a tenant as they feel it is the landlord's responsibility to screen tenants properly. Most of us know people who have had their properties destroyed by tenants and had tenants who squatted (Stopped paying rent) and forced the landlord to evict them. It seems rational if the hospital puts in a good, no-headache tenant.

[BOB W]

I feel for him, renting has such problems attached to it. Any rental I had was with relatives, DON'T is all I can say!

[Lion]

Was it available for rent? If one of his good former tenants knocked on his door with his brother/SIL with good jobs/no pets/etc., would your client have rented the house to them? Or was your client gutting/remodeling it and it wasn't habitable/didn't have an occupancy permit?

[Dude]

THanks for responding Lion. The friends of the former tenant could not break their current lease and ended up pulling out in early July. He THEN put out a "For Rent" sign, and he put it up on Zillow in August. He did some yard work, including expensive tree trimming, cleaning the gutters, and doing some touch-up painting. He also worked on the garage ceiling. Nothing that would have prohibited someone from moving in; it was livable. It's just from April to early July that he was using word-of-mouth advertising at his church and community center. Plus he thought he might have a good chance of getting the friends of the former tenant to move in so no formal advertising during this period. Sounds good to me.

[BOB W]

Having had it rented in the near past would be helpful in proving that it was available for rent going forward, if questioned. How many years has it been rented out?

[Dude]

Same tenant multiple years