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Dear Tax Talk,
I bought a Florida condo as a rental property in April 2008. It is in a resort area and will normally be rented from January to March each year. Therefore, for 2008, I will probably have no rental income. Is there any problem in deducting all of the condo's expenses for this year even though there will probably be no offsetting rental income?
-- John
Dear John,
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 cannot deduct any loss of rental income for the period the property is vacant.
You can deduct your ordinary and necessary expenses for managing, conserving or maintaining rental property from the time you make it available for rent. Generally there are two rules that would that preclude you from deducting losses from vacant rental property: 1) You used the rental property as a home for more than the allowed time, or 2) it is a not for-profit activity. Other rules relating to rental real estate losses may preclude you from using the loss to offset non-rental income.
You use a dwelling unit as a home during the tax year if you use it for personal purposes more than a small amount of time.
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| Home counts as personal use if used for greater than: |
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14 days. |
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Or 10 percent of the total days it is rented to others at a fair rental price. |
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If the apartment is vacant for the year or rented on the average of 90 days a year, you can use it up to 14 days for personal purposes. If you use the unit personally for 14 days or more, your deductions are basically limited to income. Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day.
A lack of a profit motive can preclude you from claiming expenses in excess of income. In real estate, you can consider potential appreciation value in determining a profit motive. For example, if your annual expenditures exceed income by $5,000 but the property is appreciating faster than that, a profit motive can be established.
Unless you are a real estate professional, your loss may not offset other nonrental income if your modified adjusted gross income exceeds $150,000. Instead your losses are deferred until a year that you have net rental income or sell the property.
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