STR tax deductions when there’s no rental income

Oceanside, CA · Member since 2017 · 5 posts · 2 votes

We bought an STR this year but we were not able to rent it at all due to some repairs that took much longer than expected.

Wondering what to expect come tax time. Will we not be able to write off any of these expenses because we have no rental income?

Some additional info. I have 1099 income from my LLC that has nothing to do with real estate. Though we didn't purchase the STR with LLC on the deed.

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Kit SerrellBusiness Member

Investor · Member since 2021 · 157 posts · 218 votes

So much depends on the fact pattern. I had a similar situation in 2021. Normally you would not be able to write these off because the asset was not 'placed into service' that fiscal year. You need to discuss with a good CPA well-versed in real estate. A lot more additional info is needed to be able to provide any useful advice such as..

Do you have other short term rentals or long term rentals?

Are you actively or passively managing your existing portfolio?

Do you have a full-time job or are you or your spouse considered a real estate professional?

What other kind of income you have and what deductions have you taken or do you plan to take?

What specific repairs did you make? Were these capital improvements that can be depreciated or were they condsidered routine maintence and repairs?

What kind of aquisition expenses did you have? Closing costs, paid points, etc.

Do you plan on earning more or less income next year and how will that impact your tax liability?

The list goes on..All of the above are relevant and there is not really a clear answer becuase it depends on your personal situation. There are loss limitations, real-estate specific guidance, depreciation schedules to consider, etc. You really need a good CPA that can leverage sophisticated software (i.e. not turbo tax or H&R Block) to determine what the best tax stance to take is based on the fact pattern for this year and moving forward because what might save you a few dollars this year may cost you more next year.

Also, for loan purposes, showing a huge real-estate related loss may not be your best move if you are trying to aquire more properties in the next year or two depending on your lender(s) and the kinds of loans you are trying to obtain. A good, real-estate savvy CPA will be able to give you the information necessary to help you weigh these pros and cons.

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Kit SerrellBusiness Member
Investor · Member since 2021 · 157 posts · 218 votes
3y
So much depends on the fact pattern. I had a similar situation in 2021. Normally you would not be able to write these off because the asset was not 'placed into service' that fiscal year. You need to discuss with a good CPA well-versed in real estate. A lot more additional info is needed to be able to provide any useful advice such as..
Do you have other short term rentals or long term rentals?
Are you actively or passively managing your existing portfolio?
Do you have a full-time job or are you or your spouse considered a real estate professional?
What other kind of income you have and what deductions have you taken or do you plan to take?
What specific repairs did you make? Were these capital improvements that can be depreciated or were they condsidered routine maintence and repairs?
What kind of aquisition expenses did you have? Closing costs, paid points, etc.
Do you plan on earning more or less income next year and how will that impact your tax liability?
The list goes on..All of the above are relevant and there is not really a clear answer becuase it depends on your personal situation. There are loss limitations, real-estate specific guidance, depreciation schedules to consider, etc. You really need a good CPA that can leverage sophisticated software (i.e. not turbo tax or H&R Block) to determine what the best tax stance to take is based on the fact pattern for this year and moving forward because what might save you a few dollars this year may cost you more next year.
Also, for loan purposes, showing a huge real-estate related loss may not be your best move if you are trying to aquire more properties in the next year or two depending on your lender(s) and the kinds of loans you are trying to obtain. A good, real-estate savvy CPA will be able to give you the information necessary to help you weigh these pros and cons.
5 Reply
Mitch Davidson
Lender · Asheville, NC · Member since 2020 · 463 posts · 507 votes
3y
Excellent advice, @Kit Serrell.
1 Reply
Ashley T.
OP
Oceanside, CA · Member since 2017 · 5 posts · 2 votes
3y
Thank you @Kit Serrell! That’s what I figured, but will definitely find a good CPA this year.

1 Reply
Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
Hey @Ashley T., was it in service at all? Did you list it anywhere and make it not available?
We were in a similar situation but we had it listed on AirBNB and VRBO with the calendar blocked. We did have some friends book the house to get opinions and systems to where we wanted them but that is it for the first year.
Because we had it listed, even with very little revenue that came in we were able to deduct all expenses. We do use a CPA who is also an investor. Make sure you get one that invests themselves and not just someone who took some real estate seminars.
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Leslie Anne Morris
Real Estate Agent · Smoky Mountains, TN · Member since 2022 · 1k+ posts · 984 votes
3y
You should talk to a CPA who specializes in real estate. I use learnlikeacpa.com Ryan Bakke
1 Reply
Ashley T.
OP
Oceanside, CA · Member since 2017 · 5 posts · 2 votes
3y
Quote from @Michael Baum:
Because we had it listed, even with very little revenue that came in we were able to deduct all expenses.

Ah this is good info thanks! We are still working on getting our STR permit but I’m now hopeful we can maybe eek out one rental from a friend before end of year. I’m considering applying for a long term permit as well and in a pinch rent it for month of December! Long term permits appear to be easier to get in this town.
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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
You have to get it advertised. Put it up on AirBNB and/or VRBO. Not sure with so little time left in the year if that works.
0 Reply
Michael Sylver
Investor · South East · Member since 2022 · 28 posts · 8 votes
3y
Quote from @Leslie Anne Morris:

You should talk to a CPA who specializes in real estate. I use learnlikeacpa.com Ryan Bakke

Thanks for sharing. I'm in Nashville, need to find a RE CPA.
0 Reply
Lyndsay Zwirlein
Lender · Member since 2020 · 331 posts · 209 votes
3y
Quote from @Ashley T.:

We bought an STR this year but we were not able to rent it at all due to some repairs that took much longer than expected.
Wondering what to expect come tax time. Will we not be able to write off any of these expenses because we have no rental income?

Some additional info. I have 1099 income from my LLC that has nothing to do with real estate. Though we didn't purchase the STR with LLC on the deed.
If you look to get conventional financing next year, there will be implications with how you report on your schedule E. I’d ask your cpa about that too so you don’t have any surprises if/when you go to apply for a loan!
0 Reply
Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
3y
Contact your CPA to determine how the rental property will be treated on your tax return.

There is still 45+ days left in the return to potentially change some things.

It depends on whether the property was placed into service.
[email protected]917-280-8544
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Fulton Abraham Sanchez
Accountant · CPA Miami, FL · Member since 2022 · 192 posts · 43 votes
3y
@Michael Sylver, hi. Most CPA professionals/firms these days work with clients remotely. Reach out to one that is investor friendly and is available asap. I recommend you reach out to one before the upcoming tax season.
0 Reply
Justin Phouasalith
Investor · Nashville, TN · Member since 2022 · 22 posts · 9 votes
3y
@Michael Sylver, I am an accountant (though not a CPA) and I can vouch for Matt Cervoni from Real Books. He is a TN-licensed CPA and investor who specializes in real estate accounting.
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