Are expenses on vacant rental properties deductible?
Just owning an investment property isn't good enough to deduct the expenses of that property (like interest on your mortgage, utilities, and so forth). The property needs to be rented or available for rent.
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The thought behind what makes an improvement to a property different than a repair is that an improvement theoretically increases the value of a property whereas a repair simply keeps it in working condition. A repair could also be said to return a property to a prior condition as it was before the item needing repair broke. Examples of improvements include things like a new roof, new carpets, new appliances, new additions, a remodeled kitchen, etc. Repairs and maintenance items generally are things like a repaired roof (vs. a new one), small sections of damaged carpet replaced, paint, repairs to existing plumbing or electric, repairs to appliances and so forth. Generally we can think of "adding" or "replacing" (improvement) vs. "fixing" (repairs). Repairs are usually of a smaller dollar amount as well, but not always.
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As an example let's assume you purchased a house and it basically sat there while you decided if you wanted to make it a vacation home or if you wanted to rent it out. If after a few months you decided vacations are few and far between and you might as well rent out the property for a few years you can't deduct the expenses you incurred on that property while it wasn't actively available for rent or actually rented out. It's more likely to be treated by the IRS as a second home or vacation home subject to different rules.
The lesson is to document that your rental property, if vacant, is available for rent and that you (or your manager) are actively looking for tenants! -back to tutorial index-
