Sale of rental property / expenses between rental and sale

[Janet Valdivia]

I have read IRS publications and scanned forums but can't find a direct answer to my very specific questions.  I sold a rental property last year.  The IRS says "Vacant while listed for sale. If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses."  That's fine, I understand expenses for the interim period are not deductible on Schedule E.  Specific questions:

- Are those expenses in fact allowed to be capitalized as selling expenses?  It seems the answer must be yes.

- Would this require a 266 election?  If so, is there an issue making this election for only a portion of the year for the property, since it was a rental part of the year with expenses deducted on Schedule E.  I want to elect to capitalize expenses from the time it was taken from rental service until the time it sells.  That's allowed, right?  Do I need to so state in the election?  Do I even need to make the election?

- I don't know whether this matters, but I am a "real estate professional" and also file Schedule C.  

Thanks in advance for any clarity.

[Michael Plaks]

@Janet Valdivia

You can capitalize them as selling expenses. No 266 election is needed, it does not apply here.

And frankly, you can deduct them on Sch E, too - same result basically. The rule was intended to prevent someone from deducting holding costs and depreciation on a vacant dilapidated unlivable property for several years in a row while hoping someone will buy it. Not for a few months after the last tenant moved out and before sold - which I assume to be your situation.