Tax Treatment Rental Home During Remodeling
My Rental Home was not available as a rental in 2004 due to an extensive remodeling and an addition, and I did not have rental income during 2004 as a result. I have previously rented this home and included on my Schedule E. Not sure how to complete Schedule E for 2004 since no income. Should I indicate no income but continue to deduct normal expenses, following previous depreciation schedule, resulting in a passive activity loss? I understand I will not begin a new depreciation schedule for the improvements until completed in 2005. Thank you.
Yes, you should deduct expenses as usual. You were still in the rental business, just not renting at the time. Repairs & remodeling are a necessary part of generating the income.
The IRS publication on rental income and expenses refers to the date the property was first ready and available for rental -- the date the property was placed in service -- as the date you can begin taking rental expenses on Schedule E.
I would take all the repair and remodeling costs incurred to make the property ready and available for rent as a capital improvement to be depreciated once the property is placed in service.
After you have begin rental operations, then repairs done in the course of your rental business are still Schedule E expenses even if the property is vacant at the time. Major renovations are still capital improvements to be depreciated.[ Edited by NewKidinTown2 on Date 04/05/2005 ]
Thanks for the replies. It looks like I need to depreciate the expenses. Not looking so good since the property is now only worth about $68K which consist of about $22K in rehabbing. I guess I need to depreciate the $22k over 26(?) years?
Wow!