Rental Expenses between last move out and sale of property

[Gretel]

Last tenant moved out 7.2022 and property is prepared for sale. It takes quite a while since owner lived (moved out in 2022) also on the same land in a separate building and does most of the work himself. Since the rental building was never used personally again I assume I can capitalize all associated expenses (insurance, taxes, utilities, repairs) until sold. I already did that for the second half of 2022 but started to doubt myself.

[Rapid Robert]

See pub 535 re: carrying charges. I'd say yes, you can capitalize the taxes and mortgage interest. The others (insurance, utilities, repairs) probably yes as well. I have a similar situation where a property was simply taken out of service for a year, but will be rented out again in the future.

EDIT: wait, you say tenant moved out in July 2022, and owner moved out earlier that same year? "It takes quite a while since owner lived (moved out in 2022) also on the same land in a separate building" -- so where exactly did the owner live during all this time?

I don't think it's reasonable to convert a personal residence into a rental for just a few months and then spend the next few years prior to sale capitalizing what would otherwise be personal expenses (the mortgage interest and taxes could still be deductible on Sched. A). Substance over form, etc. Maybe this is not what happened, but it's not clear to me from your post.

[Gretel]

Thanks for confirming. To clarify: 2 houses on the same land, 1. residence for decades, 2. converted garage as rental for about 3 years. Tenant moved out and client bought another residence in 2022.