Tax question on extended vanacy

6 Replies

Hi everyone,

I purchased a "turnkey rental" package of two properties from a management company in Feb 2017. However, after almost one year they're still vacant. It did have to go through a construction period, inspection and the past few months search for tenants. But the fact is since my purchase they haven't been producing any income. In my K1 do I claim a loss for the year or since the search for tenants began? I'm hoping I can claim some of these in losses when I do my taxes soon. Both of the properties are on separate LLC.

Thanks

@Ma Diga sorry to hear you have had a year of vacancy. As long as the units are marketed for rent, you should be able to claim losses for any expenses incurred. But an accountant should be able to go over the new tax laws if any changes apply to you, and your specific situation.

A couple questions:

Are these commercial properties? 

Also, can you share more details on the turn key company? It might be good for others to know more specifics so they can potentially avoid this turn key company, the type of property and/or the area.

@Andrew Thanks for your quick response.

These are residential properties in NJ area.  I'll be sure to post details once my situation is sorted out, perhaps in a separate topic.  I'll PM you specifics around the turnkey package.

@Ma Diga

A couple of comments

1) Do you own these properties in single member LLC's or multi-member LLC's?

If the answer is single member LLC - There is no K-1. You would report the information directly onto your tax return(schedule E if rental property).


If the answer is multi-member LLC - you need to prepare a partnership return where the Partnership will distribute a k-1 to each member. The K-1 would then be reported on each member's individual tax return.

2) You are entitled to start take expenses on the property once the property is ready for its intended use. If you purchased a "turnkey property" before it was fully ready. You need to wait until the property is ready to be rented to tenants.

If the properties are vacant but are ready for rent and being advertised for rent - you should be eligible to start taking expenses.

Thanks Basit.

Yes I do own them as single LLC owner.

There are no K-1's then if they are single member LLC's.

Can someone explain this "rentable" distinction? Is it only with respect to taking actual losses? I've been working slowly on one unit of a 4U. I just always assumed I simply get less income and the place is less profitable than it will be when I'm done, but I can take all the expenses of the property. We've never shown a loss on a schedule E even if one property is losing.

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