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Rental Is Vacant And Held For Investment Only
Table Of Contents
Posted Sunday, December 14, 2025
Key Takeaways
- Investment Property Is Not a Rental Business. A property held purely for appreciation or speculation is not considered a rental, even if you hope to profit someday, and that distinction shuts down most operating deductions (property taxes and mortgage interest are a Maybe).
- Investment Expenses Are Permanently Gone. Since TCJA suspended miscellaneous investment expense deductions and OBBBA made that change permanent, costs like utilities, insurance, and HOA dues on an empty investment property are simply nondeductible. Lost. Gone.
- Capitalization Under 266 Is Not a Safety Net. IRC Section 266 generally does not allow you to capitalize carrying costs on an improved building that is just sitting vacant (and not under renovations), leaving most holding expenses unrecoverable until sale.
You could purchase a property and only hold it for investment purposes (speculation, appreciation). It is not a rental property since it is not available and ready for a tenant or guest stay. In this case, your operating expenses cannot be deducted. Why? Investment expenses went away with the Tax Cuts and Jobs Acts (TCJA) as a miscellaneous deduction and was made permanent with the One Big Beautiful Bill Act (OBBBA).
Sure, it is being held for the production of income, but as a passive investment, not a rental business. That distinction changes everything. That changes things as you can see. Can you elect to capitalize the expense of maintaining your investment under IRC Section 266? Unlikely, since this code allows you to capitalize carrying charges for unimproved land or property under construction. It does not allow you to capitalize the costs of maintaining a standing, improved building that is simply sitting empty.
You might be able to deduct mortgage interest and property taxes as a second home. But the utilities, insurance, and HOA dues? Gone forever. Not just forever, but forever and ever.
Jason Watson, CPA, is a partner and the CEO of WCG CPAs & Advisors, a boutique yet progressive tax, accounting and rental property consultation firm with over 90 team members headquartered in Colorado serving real estate investors worldwide.
I Just Got A Rental, What Do I Do? 2025 Edition
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