Rental property - now out of service

[tconly]

What is the name of your state (only U.S. law)? Arkansas

Had a rural residential rental property with tenants when the water well failed. The property isn't rentable as is (i.e., no water) and no plans ($) to resolve the issue quickly. Do we simply keep filing as though it is a rental property with $0 income, stop filing until it becomes rentable again, treat it as a disposition although we still own it, ...?

An IRS publication reference would be helpful. Already read pub. 527 but didn't find anything applicable, nearest thing was a disposition of the property or converting it to our primary residence, neither of which occurred.

thanks.

 

[FlyingRon]

You don't need to "convert" it to anything. It's now just property that you own that you don't live in. You don't "file property" on your income tax. If you intend it to be rental property, you can continue to treat it as if you didn't have any tenants. Rental is usually considered a passive activity so you can't deduct the loss against your regular activity. Certain other deductions (property taxes) don't care what the property is used for so you can still take those.

 

[HappyWanderer]

I didn't want to get into things as I don't really have the time right now to explain all the in's and outs, but the issue is if it is a rental if it cannot be rented. It makes a difference. I won't recommend you keep it on Schedule E with zero rent as the facts and circumstances are important, but it is unlikely you would be caught and if you were audited you could make a case if you are trying to remedy the situation and it is temporary. If you really want to know, see a tax professional. At some point, it becomes an investment property.

While it is passive income as a rental property, there is a certain amount one can deduct against non-passive income depending on the participation and some other factors. (Like income and real estate professional issues.) Odds are he would be able to take up to $25k in losses but for this problem. Of course, where a person takes the other deductions is important. Schedule A is not useful for everyone.