Rental House Vacant Between Tenants

[OtisMozzetti]

This is a question about what to do about the hiatus between tenants of residential (or business) rental property.

Many landlords do not allow, and often could not allow, the next tenant to move in the next day. Instead, the property is cleaned up, maintained (painted inside, etc.), and provided some measure of renovations while the landlord has better access to his property. That often goes on for a week, or for up to 8 weeks, and maybe even longer. Maybe a tenant has "trashed" the property.

Meanwhile, efforts might be underway to locate and sign the next tenant; although that might in many instances be done after, not before, the sprucing up & maintenance are well along the way to completion.

One interpretation is that the property isn't "available for rental" during the period of sprucing up--which is undoubtedly a necessary part of rental business operations. Under that theory, expenses of the rental do not go to Schedule E for that period of time. Interest on the property goes not to Sch. E but instead to Sch. A as investment interest. Property taxes also go to Sch. A instead. There is no depreciation? Other expenses, such as for the maintenance and repairs, for utilities, etc. must be capitalized, i.e. added to the basis of the property?

Is this treatment necessary? What if the period of time between tenants is very short, one week, one month, two months, or whatever? In that instance, is it often allowable to simply treat all the expenses as normally done with Sch. E? Is there any acceptable period of time?

an EA in Calif.

[oceanlovin'ea]

Always available

I would think that the property is available to rent even during the repainting period. Aren't you advertising and looking for a tenant while you are doing the painting? Usually fixing up between tenants is a fairly quick fix and doesn't take that long.

I would think the "For Rent" sign would be up or it would be advertised even during that period since finding tenants is not usually done in a day or two.

So I would consider it all rental income.

Linda F

[JohnH]

I'd think that during the period between tenants, the property continues to be "available for rent". The fact that there was a tenant before the vacancy period and a tenant after the vacancy period would usually be sufficient proof, unless the owner took some specific steps to withdraw it from the market - for example listing it for sale as "unoccupied". As for the length of time required to fix up the property, restore it to rentable status, or locate a suitable qualified tenant, it's a matter of reasonableness, not the absolute number of weeks or months involved. After all, market conditions might render the property unrentable for any number of economic reasons and for an extended period of time, but that doesn't change the fact that it's available for rent if the right tenant comes along.

[thomtax]

What he said

Seriously, it seems to me that the property continues to be rental property, available for rent. If someone came along and said "I know you must fix it up, but I want to rent it and make a deposit so that I get it", I doubt you would turn them down. That would then mean that it is available for rent.

I really see no justification for suspending depreciation, etc. These are just some of the ordinary and necessary things for running rental property.

LT

[JG EA]

You don't suspend depreciation for idle property anyway.

[taxea]

nor do you suspend expenses for repairs, maint,etc taxea