Schedule E losses on property undergoing major capital improvement

[Wow67888]

Investment property has been under renovations for the entire year, no rental income being collected. Can Schedule E be filed with all itemized expenses and loss be taken for the year?

[abctax55]

Was it available for rent while these *major* improvements were being done?

[Wow67888]

Define “available”. it was rented the year before and will be rented next year, but based on the physical condition during the major improvements it couldn’t be lived it. 

[Terry53029]

The actually instructions from pub 527 are as follows:

Vacant rental property.

If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. However, you can’t deduct any loss of rental income for the period the property is vacant.

Pub 527 also says:

Vacant while listed for sale. 

If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. If the property isn’t held out and available for rent while listed for sale, the expenses aren’t deductible rental expenses.

A lot of accountants use the same rule for improvements as for a sale. I have always held the opinion  for improvements that it is available, even though a person may not want to live there during the remodel, they are welcome to live there during the remodel if they like, and I take all expenses as usual. Just my opinion

[IRonMaN]

"but based on the physical condition during the major improvements it couldn’t be lived it"

But if it couldn't be lived in, it couldn't be rented which means it wasn't available for rent.

[Terry53029]

[Removed]

[TaxGuyBill]

Personally, I would deduct the normal expenses.  CAGMC.

It was rented before the remodel and it is intended to rent after the remodel.  To me, the temporary unavailability doesn't make it a non-rental property.  With that being said, the IRS and courts may disagree with me.  CAGMC.

[abctax55]

@Wow67888 

I'll let you define (or, find the IRS definition of) 'available' for rent.

If the property was just out of service for two or three months, I probably wouldn't make any adjustments.

For a full year of down time for remodel/ *major* capital improvements - I would look at it a bit more closely.  Look for any of the cases where the IRS has voiced an opinion.

[singh]

Investment property under renovation. I would agree with TaxGuyBill. But the issue will be what would you write for 'Days rented at fair rental value' and the 'Days of personal use' ? Even if there is no income for the year and you put '365 days on rent' then you will be able to deduct all expenses except the capital improvement which can only be taken at the sale of the property. IRS may ask for the proof of availability for rent.