Converting personal residence to rental--tax questions

[Sharon D.]

We bought a home in 2016. Moved out in July of 2021 and started a very drawn out rehab project. Finally got the place listed as an STR in December of 2022 and have been booked solid ever since.

At what point do I start filing a Schedule E?  We've already filed 2021 taxes.  I thought I could amend to file a Schedule E and take a loss for 2021, but Turbotax says I can't file the schedule E because the property wasn't placed in service in 2021.  

Turbotax never asked for a date of conversion, so where does that come into play? 

Unfortunately the CPA we've worked with in the past is booked this month, so I'm trying to figure this out on my own. :)

Thanks for any help you can offer!

[Linda Weygant]

Quote from @Sharon D.:

Quote from @Linda Weygant:

Quote from @Sharon D.:

We haven't filed 2022 taxes yet so at this point we haven't claimed any income on the property.  But we did have and will report 2022 income for the property, none in 2021.  

So we can't deduct any expenses from 2021?  Utilities, taxes, insurance? 

No, nothing to deduct in 2021.
However, you should add up all the expenses from 2021 and 2022 and include that as basis which is then depreciated (not deducted)

Thank you!

So just to clarify, to establish the cost basis, I take the price I paid for the property, plus the cost of any capital improvements made both while I lived in the home and after I moved out.  And then I also add the cost of regular maintenance and repairs for the time period between when I moved out and when the property was placed in service?

 Sort of.  You're about 90% there.

Step 1.  Figure your purchase basis.  This is going to be the amount paid for the property plus some of your closing costs.

Step 2.  Allocate part of the purchase basis to land.  This amount is never depreciated.  You'll need to use one of the acceptable methods for allocating land basis.

Step 3.  Add all the expenses from 2021 plus everything from 2022 up until you placed it in service.  This is going to be all expenses that would otherwise have been deductible - interest, property taxes, insurance, utilities, etc PLUS the amount for remodel.  This total amount will be depreciated.

When I prepare returns with this issue, I add the Step 3 amount in as a separate asset called "remodel" or something so that I can accurately trace how I calculated Building Basis, Land Basis and Remodel Basis later, in case it's needed.