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March 17, 2021
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Rental Property

  • March 17, 2021
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We turned our 2nd home into a rental in 2020.  Tenants didn't move in until Feb 1, 2020 & left in June 2020.  The next tenant moved in August 1, 2020.  We didn't have renters in house January or July - can those expenses for those 2 months (January & July) included or only expenses while there were renters in the home?

    Best answer by RayW7

    If the property was available for rent for the entire year then you can claim expense for that time period as well.  

     

    Rental expenses can be deducted from the time the property is made available for rent. The expenses incurred and paid in connection with managing and maintaining the property while it is vacant are deductible. However, you cannot deduct the loss of rental income during the period in which the property is vacant.

     

    -follow this link for more information-

    Real Estate Tax and Rental Property - TurboTax Tax Tips ...

    2 replies

    RayW7
    RayW7Answer
    March 17, 2021

    If the property was available for rent for the entire year then you can claim expense for that time period as well.  

     

    Rental expenses can be deducted from the time the property is made available for rent. The expenses incurred and paid in connection with managing and maintaining the property while it is vacant are deductible. However, you cannot deduct the loss of rental income during the period in which the property is vacant.

     

    -follow this link for more information-

    Real Estate Tax and Rental Property - TurboTax Tax Tips ...

    Carl11_2
    Employee
    March 17, 2021

    Since 2020 appears to be your first year dealing with rental property and taxes, the below information should help clarify things for you.

    Rental Property Dates & Numbers That Matter.

    Date of Conversion - If this was your primary residence or 2nd home before, then this date is the day AFTER you moved out, or the date you decided to lease the property – whichever is later.
    In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
    Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day for any type of personal pleasure use during said period of vacancy.
    Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence, 2nd home, or any other personal use reasons after you converted it to a rental.
    Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

    RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

    Property Improvement.

    Property improvements are expenses you incur that “better” the property. Basically, they retain or 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 retain or 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.

    There are rules that allow you to just flat-out expense and deduct some property improvements, if the total cost of the improvement was less than $2,500. It’s referred to as “safe harbor di-minimis” But depending on the specific situation, this may or may not be beneficial. Just be aware that not every property improvement that cost less than $2,500 qualifies for this. If this interest you, the rules can get complex. So a good place to start reading is on the IRS website at https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations. The stuff on di-minimis starts about one page down.

    Cleaning & Maintenance

    Those expenses incurred to maintain the rental property and it's assets in the useable 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 useable 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.