Rental property --- No attempt to rent - Tax ramifications?

Question

What are the tax ramifications of deciding not to rent a rental property and just leave it empty?

This is a property purchased via 1031 exchange, rented briefly, and depreciation has been taken for 3 years.

Long term, it may be rented again or purchase something else via 1031.

What would be the tax issues with restarting it as a rental in a few years?

Bill B. · Answer

How long is “rented briefly” days, weeks, months, or years?

“Sit empty” means not use it personally at all? (Make sure you have vacant property insurance, standard insurance won’t cover an unoccupied property for very long.)

As long as you haven’t used it personally I’m sure there we situations where you buy a property (imagine a very run down unlivable property) for the land or the possible appreciation. But it might be harder if it’s a beach front condo you happen to visit every summer. The longer it was rented out can’t hurt either since it’s supposed to be an exchange of one investment property for another investment property

Your probably going to need a 1031 expert like @Dave Foster or a CPA to weigh in if you don’t have one.

Bruce M. · Answer

1st property 10 years fully occupied rental......1031 exchange into 2nd property --> rented a few months. Been vacant 2+ years, but have been taking the depreciation as had the intent to rent. Its just a rural single family home

My view is I don't need to rent....I can have an investment property solely for the appreciation over time. And that has in fact happened, its up 45% since purchase in 1/2020

Dave Foster was the one that handled my 1031

Mohamed Youssef · Answer

The loss is limited to $25000 only if you are adjusted gross income is $100,000 or less.

And yes, as long as you are not benefiting from these deductions then you don't have to worry about the depreciation recapture rules when you sell or exchange in the future.

Bruce M. · Answer

What is the loss limited to, as a non professional?

I never plan to sell other than as a 1031, if that. So my kids will get it or its exchanged replacement in the future(~10 yrs). To me that says, I need not worry about the depreciation going to waste? But I'm not that confident yet

Mohamed Youssef · Answer

I don't see any issues from a tax standpoint with not renting the property. You will be able to claim the expenses (i.e. depreciation, property tax, utilities, etc.) still every year but the rental loss will be limited if you are not a "real estate professional"

Sean Ross · Answer

@Bruce M.,

Bruce, holding a property for potential appreciation (i.e. not actively generating rental or business income) is a valid tax strategy. You're not risking your prior 1031 exchange by simply changing the strategy you use.

Unless you've spent a lot of personal time using the property, letting your asset sit will not compromise your 1031. Remember that 1031 exchanges are ultimately about your intent to use the property for long-term business or investment purposes.

If you are spending a lot of personal time there, I would speak with a CPA about whether or not to continue to list it as a depreciable investment asset on your tax returns.

There are no tax issues with restarting it as a rental in a few years.

Rental property ---> No attempt to rent - Tax ramifications?

Rental property ---> No attempt to rent - Tax ramifications?

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