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I own a rental property that has been rented for 30 years.

I own a rental...

I own a rental property that has been rented for 30 years. Before placing it for sale, there will be numerous repairs necessary to place it back in its original condition. How are carrying costs treated for tax purposes while the repairs are being made? Are taxes, insurance, and utilities deductible during the repairs? Can a loss be shown while the property is being repaired? If not, can they be shown as a capital expense?

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Answered in 12 minutes by:
3/20/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,740
Experience: Taxes, Immigration, Labor Relations
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Before placing it for sale, there will be numerous repairs necessary to place it back in its original condition. How are carrying costs treated for tax purposes while the repairs are being made?

All these costs for improvements and sale expenses are capitalized - means - added to your basis - and will reduce the gain.

Are taxes, insurance, and utilities deductible during the repairs? Can a loss be shown while the property is being repaired? If not, can they be shown as a capital expense?

These are deducted as rental expenses on schedule E.

You will continue to deduct these as rental expenses regardless if you had no rental income.

So you will have rental loss during that time - and that loss will be fully deductible in the year of sale.

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Customer reply replied 1 month ago
I followed you til you said that the loss will be fully deductible in the year of the sale. If the loss due to carry costs took place two years before the sale and one year before the sale, why would be loss take place in the year of the sale?

We need to be clear - you wrote - If the loss due to carry costs took place two years before the sale and one year before the sale -

If these are rental expenses - they are deducted on tax returns when actually paid .

We may not just keep these expenses and choose when to deduct...

But if these are improvement expenses - these are NOT deducted but ADDED to the basis (capitalized).

So - we need to differentiate expenses and there might be different treatment.

Lev
Lev, Tax Advisor
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