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Taxpayer stopped renting his rental property 7/31/17. Rental property was vacant 8/1/17-10/10/17 and sold 10/10/17. Can taxpayer deduct the mortgage interest on vacant rental property from 8/1/17-10/10/17 on Schedule E?
Taxpayer already has two other homes which use up all of the interest deduction on Schedule A,.
So, the interest on the former rental property vacant pending sale 7/1/17-10/10/17 can't go on Schedule A as you can't deduct interest on a 3rd home.
Is this investment interest for the period vacant and pending sale?
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We were not clear in your question but I assume the property was taken off the market as of 8/1/2017 and was not available for rental during the intervening period.
Since the rental property constitutes a passive activity under §469 and should, prima facie, not meet the de minimis exception under the regulations given the amount of gross income that would have received during the year, it cannot generally be treated as an investment property for purposes of §163.
In the past, otherwise deductible expenses incurred in relation to the retired rental property pending a sale may be deducted under §212 but 2% miscellaneous itemized deductions under §67 have since been suspended under TCJA.
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I also agree that as an "investment" property for that brief period as the Regs under §469 and §163 will disqualify that treatment. It remains a passive activity and the gain upon fully taxable disposition may then offset any current as well as suspended PAL.
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