STR tax deductions when there’s no rental income

[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.

[Katherine Serrell]

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.