Hi all,
I have a tax question. The upstairs of my house is a separate unit and I rent it out. My first batch of tenants were lousy tenants (don't mix family and money y'all). They "moved out" in November but left a ton of stuff in the unit, constantly promising that they were going to get it out that weekend. They finally actually left in May. During this time they paid no rent. I realize I should've taken all their stuff and dumped it on the porch of their new house and rerented it immediately, but they told me they were going to pay the rent for the time they had their stuff there and like a sucker I believed them. Suing them would cause enormous family rifts that aren't worth it. Not looking for advice here, it's just the background.
My question is, should I deduct depreciation etc for those months? I would actually prefer NOT to because I'd rather be able to show a profit on taxes so the IRS doesn't disallow it as a hobby if I'm not making enough money in the future. Because this is a house hack, it helps our finances significantly but it's actually kind of hard to get it to look profitable on a tax return. But I don't want to do anything illegal or honestly even anything where the IRS will argue with me for a long long time even if they decide I'm right.
Last question, the above is based on this "show a profit 3/5 years" rule; if I don't rent the property for 5 years how do they figure this? I think we will want to use the space ourselves before then. On paper we made money in 2018 and lost money in 2019. If we lose money in 2020, make money in 2021, and then close up, will that be a problem?
Thanks!