moving into my rental property to renovate

Investor · Oakland, CA · Member since 2019 · 57 posts · 41 votes

I currently own an older rental property. The lease has ended for my tenants and i want to move into it for about a year to renovate it, and later rent it out again at a higher price. Am i able to write off any renovations in my taxes if i am living in it since it will not be producing me any income while i am residing in it?

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Natalie KolodijBusiness Member

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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes

The renovations can be added to basis and they'll be depreciated once it's back in service.

You can't deduct any thing while it's your home- and I would freeze depreciation for that time since it's being taken out of service for longer than normal renovation time for your purposes.

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Jaysen Medhurst
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y
For sure talk to your CPA, @Joseph Vu, but usually you "establish" primary residency by living there for 2 out of 5 years. I think for that reason you could deduct the expenses. Some (or all) may need to be carried over to 2021 once it's actually producing income. Again, talk to your CPA.
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
6y
@Linda Weygant or @Natalie Kolodij or @Brandon Hall will have better answers but I think it's going to be no, because the property will not have been available to rent at least 6 months of the year. So you might want to consider moving in for less than 6, then get out and put it back on the market.
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Frank Chin
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
6y
Interesting situation.
My dad owned commercial property, and they sometimes can be vacant for a long while, like a year sometimes. One time he had to renovate the building, then put it up for rent, and for a year and a half, vacant. As far as I know, he continue depreciating, deducting expenses such as real estate taxes for the property.
I have a similar situation with a triplex I owned. It's a 65 year old building in need of a gut rehab. I occupied one unit, which for accounting purposes owner occupied, and the other two rentals, where I depreciate and deduct expenses, and on the schedule E. Had discussions with my CPA if I had to suspend depreciation and deductions in the meantime because the renovations would take a while. What made it more complicated was I would be moving from one unit to the next as this was going on. His suggestion was to maintain the books the way they were, rentals on the schedule E, continue deductions, even thought there's no rental income in the meantime. His comment was it'll be nightmare scenario to go back and forth and figure out which unit I'll occupy and when.
Now, I don't know whether this is the final word of the IRS, or if they have any written opinions on it, just brief comments from my CPA.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
6y
The renovations can be added to basis and they'll be depreciated once it's back in service.
You can't deduct any thing while it's your home- and I would freeze depreciation for that time since it's being taken out of service for longer than normal renovation time for your purposes.
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
6y
Originally posted by @Natalie Kolodij:
The renovations can be added to basis and they'll be depreciated once it's back in service.
You can't deduct any thing while it's your home- and I would freeze depreciation for that time since it's being taken out of service for longer than normal renovation time for your purposes.

I knew Natalie would know the answer :)
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