This question comes up frequently: how long can a rental house sit vacant and still be a rental for tax purposes? The answer: there doesn’t seem to be a hard and fast rule.
In this Tax Court case from 2011, the Court ruled that a vacant rental house was still a rental because the owner still had a profit motive. Here’s what the Court said (my emphasis added):
In the case of an individual, section 212 allows as a deduction all ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income or for the management, conservation, or maintenance of property held for the production of income …. For purposes of this section, the term “income” includes not only income of the current year but also income that may be realized in a subsequent year.
As always, it depends on all the facts and circumstances. If the property is sitting vacant but you’re hoping to sell it for a profit someday, then you might be able to convince the IRS (or the Tax Court) that it is still a rental.
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