Rebuild rental property - involutary conversion

[KJ Judd]

Client lost a rental condo in Hurricane Charley in 2004. In 2005, she rebuilt the condo. First rental after being rebuilt was Jan 2006.

How do I handle her expenses for going down to supervise reconstruction and purchase new furnishings? She has some travel, lodging, car rental & food expenses. Do I need to capitalize these or can I deduct currently?

In addition she has some rental expenses (condo assn fees, real estate taxes, and minor utilities) during the rebuilding period. How are these treated?

I thought I recalled a discussion on this before, however I was unable to locate it by searching. Any guidance is appreciated!

[Bees Knees]

IRS is going to want you to capitalize everything. However, I would simply deduct the travel expenses that were not reimbursed through insurance as current expenses on the Schedule E, as this is an on-going rental activity. Same with the other expenses as the rental was only taken out of service temporarily due to the casualty.

I argued with an auditor once over this issue. In my case, the rental was only out of service for just under one year. When we showed that a for rent sign went up the minute the repairs were done, the auditor gave in.

[KJ Judd]

Thank you so much for responding, Bees! My thoughts agree with yours. My case is very similar. Thanks Again!