Rental unit not rentable.

[Max W]

Client has a rental unit that needs lot of repairs.  He hasn' rented it 3 years.

What expenses, if any, is he able to deduct, such as mort. int., prop. tax, ins., dep.?

[Sara EA]

If not available for rent, it's not a rental but is out of service.  He can deduct property taxes on Sch A, and mortgage interest if he doesn't already have a second home.  He could have made an election to capitalize the carrying charges, but he would have had to do that the first year it became an investment property rather than a rental.

[Abby Normal]

https://www.irs.gov/publications/p527#en_US_2020_publink1000219042

"Temporarily" usually means less than a year, even though the code is rarely specific on this, but you might want to search court cases on extended idle periods for a rental.

Elections for unimproved and unproductive real property must be made annually. I'm not aware of any requirement that it must be made the first year.

[jklcpa]

A Sec. 266 election for unimproved and unproductive real property is made on a year to year basis, and must be made by attaching the election to an original return. Once made it is irrevocable unless IRS gives consent.

It does not have to be made in the 1st year that the property became unproductive and out of service.

 

 

 

 

 

[mcbreck]

On a different note: if you don't have a current occupancy permit, you aren't a landlord. Had a client years ago who kept arguing with me that he was a landlord and should be able to take deductions on his properties. Finally when I asked if he could legally rent out the property to someone to reside in it he started to see his problem. It isn't an always catchall but it helps some people see the situation a little differently.

 

Commercial / industrial property has a different renting timeline than residential in today's world. It's common to see commercial units be vacant since Spring of 2020 and still not see a lot of activity.