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Forum / Real Estate Investing / allowable income tax deduction for loss of rent on vacant property
I purchased and renovated a property for rental income. I've advertised the property for 4 months now and have not been able to find tenants. at what point can I claim loss rental income on m federal taxes?
ben h, PA on Sunday, September 2, 2012
RE: allowable income tax deduction for loss of rent on vacant property
After the first month of not finding a tenant, you might have thought your rent was too high.
Posted by Dawn A, WI on Sunday, September 2, 2012
RE: allowable income tax deduction for loss of rent on vacant property
you didn't answer the question. assume you don't have an answer or a clue to an answer?
Posted by ben h, PA on Monday, September 3, 2012
RE: allowable income tax deduction for loss of rent on vacant property
This IRS webpage will help you: http://www.irs.gov/publications/p527/ch03.html
Posted by Dawn A, WI on Monday, September 3, 2012
RE: allowable income tax deduction for loss of rent on vacant property
The answer to your question is NO. You can NEVER deduct loss of rent. Period…… Also, let’s assume that you “purchased” a home as rental property in May and made some improvements/repairs. Improvements were completed in July and you started to “advertise” the property for rent in Aug. Not only can you not claim loss of income, you can not deduct the cost of capital improvements or repairs expense until Aug. -----Disclaimer: Since I’ve been answering a lot of questions, I thought I would make the following statement. I’m not affiliated with EZlandlord Forms. I’m just here (not sure how long) to help those that have questions. Having 40+ yrs with Rental Property and done well, it’s my way of “Pay it Forward (check out the movie).” However, it is up to you to become familiar with your State/Local laws. I always like to know if the suggestions I offer are helpful. Feel free to comment anytime. Thanks in Advance
Posted by Bob R, CA on Monday, September 3, 2012
RE: allowable income tax deduction for loss of rent on vacant property
Ben H, here's what I think: You cannot claim 'loss rental income' exactly, meaning that you cannot show the amount that you were expecting to receive and then claim that as a loss. i.e. you are asking $1,000/month in rent, you are receiving $0, therefore you show a loss of $1,000/month. Rental income is reported on Form 1040 Schedule E. As a landlord, it is a very good idea to familiarize yourself with this form and its requirements. http://www.irs.gov/pub/irs-pdf/i1040se.pdf What you can do is start to depreciate the property and claim associated expenses after the period in which it is placed in service. Per the IRS, "You place property in service in a rental activity when it is ready and available for a specific use in that activity." Example 2. On April 6, you purchased a house to use as residential rental property. You made extensive repairs to the house and had it ready for rent on July 5. You began to advertise the house for rent in July and actually rented it beginning September 1. The house is considered placed in service in July when it was ready and available for rent. You can begin to depreciate the house in July. Example 3. You moved from your home in July. During August and September you made several repairs to the house. On October 1, you listed the property for rent with a real estate company, which rented it on December 1. The property is considered placed in service on October 1, the date when it was available for rent. Source: http://www.irs.gov/publications/p527/ch02.html Bob R is correct in that you cannot deduct expenses incurred prior to the date when you started advertising the property as available. However, you can still depreciate capital improvements that were made prior to this date. I highly recommend this book - for $24, it should answer all of your questions and help you determine what a capital improvement and what is an expense. http://www.amazon.com/Every-Landlords-Tax-Deduction-Guide/dp/1413316417 Here is the relevant IRS publication, but it is harder to understand than the book: http://www.irs.gov/pub/irs-pdf/p527.pdf
Posted by Ethan G, PA on Tuesday, September 11, 2012
RE: allowable income tax deduction for loss of rent on vacant property
Sorry about formatting above - first time posting on this forum and I didn't realize that it didn't keep the spacing.
Posted by Ethan G, PA on Tuesday, September 11, 2012
RE: allowable income tax deduction for loss of rent on vacant property
@Ethan: I disagree with your statement “However, you can still depreciate capital improvements that were made prior to this date.” ……(Note: This date to mean “placed in service). You cannot depreciate capital improvements prior to placing property in service. The cost of improvements must be added to the tax base value. In other words, if property was purchased for $100K and you did $20K improvements the new tax base of the property increases to $120K….. There’s more to the story for determining tax base adjustments. You should review IRS Pub 527. -----Disclaimer: Since I’ve been answering a lot of questions, I thought I would make the following statement. I’m not affiliated with EZlandlord Forms. I’m just here (not sure how long) to help those that have questions. Having 40+ yrs with Rental Property and done well, it’s my way of “Pay it Forward (check out the movie).” However, it is up to you to become familiar with your State/Local laws. I always like to know if the suggestions I offer are helpful. Feel free to comment anytime. Thanks in Advance.
Posted by Bob R, CA on Tuesday, September 11, 2012
RE: allowable income tax deduction for loss of rent on vacant property
@Bob: Very good point Bob, I agree, and it looks like I was unclear in my response - thanks for the clarification. What I meant was that even though the improvement was made prior to the property being placed in service, you can still depreciate this improvement *after* the date the property is ready to rent and advertised (placed in service). It is also important to note that these improvements will have a different tax basis for depreciation and should be depreciated separately from the property itself as they often have a different depreciation period. For more information, see: http://www.irs.gov/publications/p946/ch01.html#en_US_2011_publink1000107378
Posted by Ethan G, PA on Tuesday, September 11, 2012
RE: allowable income tax deduction for loss of rent on vacant property
@Ethan: Still not clear what was meant by "you can still depreciate THIS improvement *after* the date....." It appears you're referring to improvements made prior to “placed in service.”
Posted by Bob R, CA on Tuesday, September 11, 2012
RE: allowable income tax deduction for loss of rent on vacant property
@Bob: I think this should clear it up: "An addition or improvement you make to depreciable property is treated as separate depreciable property. ... Its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. The recovery period begins on the later of the following dates. 1) The date you place the addition or improvement in service. 2) The date you place in service the property to which you made the addition or improvement." Source: http://www.irs.gov/publications/p946/ch04.html#en_US_2011_publink1000107535
Posted by Ethan G, PA on Tuesday, September 11, 2012
RE: allowable income tax deduction for loss of rent on vacant property
@Ethan: I stand by my 1st and 2nd statements above. Simply put – any repairs/improvements done BEFORE the property is placed in service is added to the base….. Any repairs/improvements done AFTER the property is placed in service is either deducted as an expense or depreciated.
Posted by Bob R, CA on Tuesday, September 11, 2012
RE: allowable income tax deduction for loss of rent on vacant property
Ben, looks like I was wrong about the ability to deduct operating expenses prior to the property being available for rental (placed in service). One more reason to read a book, and not blindly trust opinions in forums. You can deduct up to $5,000 in operating expenses prior to the property being placed in service as start-up costs. See IRS pub 535, Chapter 7, and look here for an overview: http://books.google.com/books?id=d3aFi3s7Bl4C&pg=PA211&lpg=PA211&dq=rental+property+deductible+start+up+costs&source=bl&ots=uoV3p575_C&sig=gxPiWJc2VmrnWKJYvvYNz3vtbj8&hl=en#v=onepage&q=rental%20property%20deductible%20start%20up%20costs&f=false
Posted by Ethan G, PA on Friday, September 14, 2012
RE: allowable income tax deduction for loss of rent on vacant property
@Ethan: I agree with your statement “…and not blindly trust opinions in forums.” Also, books are great aids, but the final decision is with the IRS. Pub 527 is your bible….. You’re mixing apples and oranges. Pub 535 is for Business (Sch C) not Rentals (Sch E)...... If anyone here has a need to deduct the expenses/cap improves the year you place a property in service, get it rented before doing any work. Tenants are usually happy to know that you will be making improvements…. I caution those that are reading this, if they intend to follow Ethan’s suggestion. I believe you would be opening the door for an audit. If you find yourself in this (deductions) situation, I highly recommend that you consult a tax preparer that’s *experienced* in real estate filing. -----Disclaimer: Since I’ve been answering a lot of questions, I thought I would make the following statement. I’m not affiliated with EZlandlord Forms. I’m just here (not sure how long) to help those that have questions. Having 40+ yrs with Rental Property and done well, it’s my way of “Pay it Forward (check out the movie).” However, it is up to you to become familiar with your State/Local laws. I always like to know if the suggestions I offer are helpful. Feel free to comment anytime. Thanks in Advance.
Posted by Bob R, CA on Friday, September 14, 2012
RE: allowable income tax deduction for loss of rent on vacant property
Please note that IRS Publications are guides and not the law. There are rarely errors in a publication but if there is one it will not save you from owing the tax. It will save you from a penalty however if you relied upon a publication with an error. What others have stated is pretty much correct. As a cash basis taxyaper, someone who recognizes income when it is received, you may never claim a loss for uncollected rent. But even if you were an accrual based taxpayer, someone who recognizes income when it is earned, you would not be able to take a loss for a property that does not have a lease because you would have no earned income to report. You make start deducting repairs, depreciation, fees such as rental permits, advertising costs, utilites and other expenses when the property is placed into service. The property is considered placed into service when you hold it out to the public for rent. Hope this helps.
Posted by Daryl J, DC on Saturday, December 20, 2014
RE: allowable income tax deduction for loss of rent on vacant property
20
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RE: allowable income tax deduction for loss of rent on vacant property
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Posted by jahfwkwi j, on Wednesday, April 3, 2019
RE: allowable income tax deduction for loss of rent on vacant property
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