All Forum Posts by: Paul True

I have searched far and wide turned up little on the matter of common expense allocation. So what is the proper way to allocate common indirect expenses not attributable to any one property across a range of properties including land and not in service locations?  Should they be allocated uniformly to all properties including land or not in service locations. Should they be allocated as percentage based on income of the properties, or allocated uniformly only to active in-service properties? Should they be listed as a location on the return rather than being allocated to individual properties? I have on CPA that did one way, another that did something else and one that seems to make more sense to me. Fully confused. Help will be appreciated. 

 Hi Bob,

Terribly sorry for the belated reply. I just saw your question. So my situation is a multi-member LLC not a disregarded single member and I itemize. The basics of Vacant While Listed would still apply though. In my case I capitalized all expenses from the time the property was vacant and no longer held out for rent. Seem like an absurd pain, but the IRS seems to think of real estate like any other asset and realistically it was out of service for its intended purpose.

Hi Dave,

Thanks for taking time out to respond. Maybe I am missing something or making it more complicated than necessary.

Let me write a bit more and maybe you can make sense out of the mess.

1) I am not clear on items paid in advance that cover both the in service and per/post in service dates. For example: insurance, utilities and taxes. As an example: Lets say the home was a rental for years and then became vacant April 16, 2017. Do I need to divide items paid in advance between in-service (expense), vs. out of service?

2) I thought all expenses were reported within the partnership return and then the profit or loss was carried to Schedule E from the K-1? Our taxes are prepared by a CPA and show nothing other than that on Schedule E.

3) In order to capitalize items from pre-and-post service periods I thought a 266 Election was needed? This was unfortunately not done in past periods but can be for the current year. I know taxes can be deducted on Sched. A and some additional holding cost but of course those are then subject to AMT and may not be terribly useful. 

In a nutshell I am trying to figure out is it as simple as capitalizing any bills that come in after the last renter has moved out (and can that be done without a 266 election in a prior year) or is it more complicated to actually meet the requirements.

Grateful for the help.

So I decide to sell a rental property within a LLC. for which I am manager. It was listed for sale while occupied but then the renter moved out. Shortly after the property sells. Now I discover seemingly bizarre IRS reg that apparently requires it to be held out for rent during sale in order to deduct rental expenses.

 "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."

Why would anyone rent or hold out for rent a property that could sell at any time. It would complicate showing not to mention run a renter ragged? 

Oh well it happened. I sold the house with no intention to rent following the former tenants departure. So what do I do with the expenses during that period? Do I capitalize them? Pass them through to Sched. A? Lose them? What about Taxes and Insurance? Do I have to allocate them proportionally to rental and non-in service period? 

I have invested in real estate for many years, but the more I read IRS code the less I enjoy this. I gotta be missing something. Perhaps someone would be kind enough to bring some sanity. 

Thanks.