accountant going over what days of the year you can deduct expenses

Can You Deduct Rental Expenses When A Property Is Vacant?

Renting out a second home can provide a variety of benefits for homeowners in the position to do so. However, there are also a variety of things to consider when you’re doing renting out your second space. Perhaps one of the most prominent of these is the deductions that you will be entitled to. That being said, when homeowners decide to make this change, many wonder what qualifies as a deduction when the property is vacant, including the time before it was an income property and in the future when (and if) there’s a lapse in tenants.

To start with, yes, you can still deduct rental expenses when the home is unoccupied. There is a finite amount of time where you’re allowed (and able) to do this, so there are a few things to keep in mind as the IRS and the tax code can be relatively complicated. 

Deductions That Are Allowed

There are a variety of deductions that are available as soon as you start renting out a property, regardless of whether or not the house is being rented. While this naturally includes any maintenance and repairs that will be needed on the premises, what you may not realize is that you’ll be able to deduct any marketing expenses related to the rental.

Marketing costs can also include any costs associated with hiring a real estate company to handle the property and can be deducted regardless of whether or not someone is renting the house. Depreciation (i.e. the reduction of your home’s value over time) is also a deductible expense, no matter how much you’re making from the home at any given time.

When You Must Stop

If you have not received income from the property for some time, that doesn’t mean you need to stop deducting expenses from your tax filings. However, that doesn’t mean you’ll always be able to do so; there are a few instances where you’ll need to stop. One of the most prominent of these is if you start using the property as a holiday home during the year. This may be obvious, but it means the home can’t qualify as a rental during this period and therefore cannot be deducted.

A good rule of thumb to follow is: if the home is not occupied, you can deduct it. This means even if you have a relative staying at the place (rent-free), you cannot deduct that time. You can only deduct expenses from the rental property for any period of time when the home is 100% vacant. For another example, if you live on the premises between January and March, you will not be able to claim any deductions during that period; however, from April 1 onwards, you should are able to do so, as it’s no longer considered a holiday home for the rest of the year.

Should you live in the property for a certain portion of the year and have it available for rent for the rest, then you’ll need to divide the potential deductions accordingly. In the example above, for instance, you could be living in the home for 25% of the year. This means that you’ll only be allowed to claim 75% of the rental deductions that would have otherwise been available.

This is what’s known as ‘personal time’ in the property and can be broken up into any time during the year and may have to be planned in advance for tax purposes. It should also be noted that, should this personal time be canceled for any reason, then you’ll need to put it up for rent immediately to begin claiming the deductions.

For more information, you can always contact a qualified CPA.

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.