Idle property (Expenses & Depre)

[ILLMAS]

Scenario: TP decided to renovate a rental unit after the lease expired, the property was rented for three months in 2015, improvements overlapped into 2016 and was finally rented in 2017.

Questions

1.  Would it be proper to depreciate the property in 2015 for only 25% (3/12), zero in 2016 and whatever percentage applies to months rented in 2017?

2.  Same question but for expenses, what is the appropriate thing to do, expense (continue expensing each year) or capitalize (in year placed back in service)?

From the IRS

Idle Property

Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it is not available for rent.

Please define temporarily idle?

Let's say in this scenario, TP was not in a hurry to have the job completed or to rent it.

Thanks

 

 

[Roberts]

IMO, I'd want to document the amount of repairs and decide if what your client is doing is actually a rehab. If they decided to do a significant rehab of the property, a temporary stoppage is normal and capitalize the rehab expenses.

If what they did was drag a small repair job out for 16 months - that's not really applicable. The IRS would IMO want proof they are actually actively managing the property as a rental business.

[Lee B]

Perhaps the property changed from rental property to investment property in the interim, ultimately changing back to rental property ? 

[Abby Normal]

Temporarily in this case is probably less than a year. If it was ready and available to be rented and was on the market to be rented in 16, take depreciation in 16.