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June 6, 2020
Question

I was continuing to rent my condo in 2019. They moved out the end of September, 2019. As a result of their leaving I needed to renovate. Can I deduct these expenses ?

  • June 6, 2020
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The renovations continued into 2020, so I was unable to rent it again for 2019.

1 reply

Carl11_2
Employee
June 6, 2020

The renovations continued into 2020, so I was unable to rent it again for 2019.

That's fine, provided you did not live in the property for one single day as your primary residence, 2nd home, vacation home or any other "personal pleasure" use, the property remains classified as residential rental real estate for the entire tax year. You still report as rented for "the whole year"  and you can continue to claim/deduct associated rental expenses incurred while it was vacant for the rest of 2019. For example, I"m sure you paid utility bills, maybe property taxes and I'm sure you continued to make the mortgage payments so the interest is fully deductible as a rental expense.  As for your renovations, that may be handled differently. If it was empty for so long, then sounds to me like you did what is classified as property improvements.

There is a difference between "expenses" and "property improvements".

Expenses are deducted. Property improvements get capitalized and depreciated over time. While you will claim those expenses you actually paid in 2019, you will not enter one single keystroke of information on yor 2019 tax return, concerning the property improvements. You'll deal with that on your 2020 taxes when those property improvements are completed and the property is move-in ready again.

Property improvements are entered in the Assets/Depreciation section and get depreciated over time. Moe than likely your property improvements will be classified as Residential Rental Real Estate and depreciated over the next 27.5 years. 

Depreciation does not start on those improvements until the work is complete and they are placed "in service" - meaning the property is move in ready. Generally, the property is considered move in ready the day you put the FOR RENT sign in the front yard. Since that didn't happen in 2019, you won't enter property improvements at all on your 2019 tax return.

Here's a few definitions for you.

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements. (What your county property tax appraiser values it at *does* *not* *count* for this. They only appraise for tax value, not for fair market value.)

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the usable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.

Repair

Those expenses incurred to return the property or it's assets to the same usable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.