Losses on rental property

Forum|Forum|3 years ago
February 9, 2023
2 replies
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We purchased a condo on a recreational lake in August, 2022, spent over $25k in repairs, painting, furniture, etc. to get it ready for rental short term rental use. We only earned $80 from the property in 2022. When populating everything on my schedule C, I see a loss of ($11,484), but didn't see any change in my overall taxable income.

Are the improvements to the condo not deductible or what am I doing wrong?

Thanks!

TurboTax Business Windows

Best answer by ThomasM125

Thanks for the detailed reply. They are not just improvements... We did paint the unit at a cost of $6400, but a lot of the expenses went to furniture, bedding, towels, vanities, some minor electrical, ceiling fans, lighting, etc... Does that change anything? Thanks again for the help!!!

You can expense the painting as a repair. Major Furniture and equipment purchases should be depreciated over five to seven years. Bedding, towels and things like that can be expensed.

JamesG1

At the screen Are you an active participant in the rental property?, did you answer No?

To check the answer, follow these steps:

Access the rental activity.
Click Edit to the right of Rental property info.
Under Owner Info and Active participant does it say No?

See also here.

@gara21415

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gara21415Author

No, I indicated YES, I am an active participant. That's not the issue.

ThomasM125

Improvements are deductible, but have to be depreciated over 27.5 years for a residential rental, so your deduction would be minimal in the year you put them into service. It sounds like you may be deducting them as repairs, which is not appropriate for major renovations as you describe.

The main reason a loss on a schedule C would not be deductible would be that you didn't materially participate in the business or you didn't have money at risk in the business, so you would need to review your answers to those questions.

Also, unless you are providing substantial services to the rentors, such as would be the case with a bed and breakfast, you should report the activity on a schedule E for rental income, not on a schedule C which is for business income and expenses.

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