Sale of Rental Property

[dsi]

Clinet sold his residential rental Jun 2007. It was a rental from inception (09/15/04), except it wasn't being rented during 2007 because it was up for sale.

Questions:
1. How and where are the 2007 county taxes paid and mortgage interest paid through the date of sale reported? I'm thinking Sch A because it wasn't rented in 2007?

2. How and where do I report the suspended loss that has been carried over from prior years?

[JG EA]

This is a quote from earlier thread where I asked a question. I think part of it applies to your question.

.Bees Knees.....
...I had an audit where the taxpayer took 9 months to repair his rental after the previous renters trashed the place. The auditor tried to say the repairs should be added to basis. I came up with all kinds of court cases where property had been taken out of service for years, but not retired, and the court said depreciation and other costs were still current expenses. One case from the 1940s had a taxi cab company take a few taxi cabs out of service, put up on blocks with the tires and batteries removed for 3 or 4 years at a time, and the court said you still depreciated the property because they could be used again in the business. Only when you permanently retire property from service with no intent to use it again do you stop taking a depreciation deduction.

I would strongly argue that fixing up expenses with the intent of selling rental property is a current expense, not to be added to basis. The reason is, if the rental does not sell, it goes back to being rental, and the fixing up repair costs could not be added to basis because they did not improve the overall function or life of the property. They simply repaired something that already worked just fine prior to the damage caused by the previous renters.

http://www.thetaxbook.com/forums/showthread.php?t=102&highlight=rental+expenses

[dsi]

Thanks JG. I'll read a bit more on this to make certain that I CMA.

[John of PA]

Sch E

1) On Sch E, page 1 generating a loss.
2) On Sch E page 2, Part II, col F.