I have a house that is currently vacant and has been for about three years. I am making monthly payments on the house. I am trying to figure out if the payments I have been making for the past three years with no rental income from the house be considered a loss and deducted from my taxes. I did have a renter there for about a year. Paid rent once or twice. (family member long story)
The main reason the house is not rented is that it needs some major repairs (replace the roof and repairs to floor). About 1/5 of the house is seperating from the rest (crawl space).
Any advice and guidance would be appreciated.
Paul
No.
In the eyes of the IRS an investment property must generate a profit in 3 out of every 5 year period. If not, it will be qualified as a “not for profit” activity, and no deductions will be allowed.
you don’t “have” to generate a profit 3/5 as long as you ARE RUNNING A BUSINESS. Meaning, you advertise, have tenants, sign leases, and all the other things that businesses do. If you ARE RUNNING A BUSINESS in a businesslike manner, then the losses are deductible. Making income is only part of the test. If you are not RUNNING A BUSINESS, then it’s called an expensive hobby.
I would suggest that you either 1) sell it or 2) fix it up and lease it. Even if it loses money on paper, it still may break even cash flow.
I don’t see that you can do a SchE, but you could claim it as a second home and take the interest deduction on Sch A. If you are already taking take on some other property, you may be able deduct the interest paid as investment interest. If I remeber correctly, that on Sch A as well, but I would have to check how my EA did it. Also, you can take the real estate tax paid as a deduction on Sch A as well.
You have a vacant property that you are not fixing up nor advertising for rent. You are just holding a deteriorating property, maybe hoping (wishful thinking?) for future appreciation.
In the eyes of the IRS you have an investment property but not a rental property. In the eyes and minds of most investors you have an alligator.
This property has limited value in its current condition – maybe only land value. Certainly your out of pocket costs for property taxes and hazard insurance are much greater than the tax benefits you may derive if you are itemizing your deductions.
Listen to Mark Wagner. Good business sense tells you to either turn this property into an income producing asset or sell it. Consider wholesaling it to a rehabber for a quick sale if you don’t want to spend the money to make it habitable as a rental.