I missed something in one of your posts above. So let me recap.
The unit was not in a rentable condition for the remainder of 2022, but does it stay "in service" anyway,
Nothing wrong with that, since your intent is to rent it out once renovations are complete. Therefore, the status does not need to change or be changed. Asset depreciation *will* continue for the entire year, as it should.
I am assuming we would only be able to deduct expenses for taxes, utilities, etc. apportioned for the 4 months that we rented in 2022,
That assumption is incorrect. You can claim/deduct expenses for the entire time the property is classified as a rental. You did not convert the property to personal use at all in 2022. Therefore, all expenses incurred for the entire tax year can be claimed on the 2022 tax return.I'm sure that during renovations, the use of utilities (water for mixing plaster, electricity for the skill saw/power drills, gas for heating so the workers didn't freeze, etc.) was required. Therefore, the cost of those utilities is a valid rental expense.
This is in direct conflict with what @GeorgeM777 says. I suspect he may have mis-read or mis-interpreted something. ( don't think I did, but won't rule it out.)
it appears that the program is claiming depreciation deduction for the entire 12 months of 2022, even though I entered 120 days of FMV rental (and zero personal use). Is that correct?
That is correct. The property is depreciated for the entire time it is classified as a rental. it does not matter if it was actually rented out or not.
Be aware that vacant periods between renters do not count against you. Only personal use days would count against you, and you don't have any personal use days. Therefore, depreciation is taken for the entire tax year.
For the new asset, (the property improvement you did, whatever that was) depreciation on that will not start until the first day that asset is available to a tenant. So if you put a new roof on and started looking for a renter/advertising in 2022, then that date in 2022 would be the "in service" date. You can also claim it to be "in service" the date the work was actually completed, if you want.
If you did not start looking for a renter until 2023, then you would enter nothing about this property improvement on your 2022 tax return. It would be entered on your 2023 tax return which y ou won't deal with until next year.
Your other option is to convert the entire property and all existing assets to personal use, one day after the last renter moved out. But that means any and all expenses incurred after that date are flat out not deductible at all, in addition to stopping depreciation on the property and all it's assets. But that creates it's own issue when you convert the property back to a rental, as you have to manually do the math yourself to adjust the cost basis, and depreciation starts all over from year 1, for the next 27.5 years.
In my opinion (and we all know what opinions are like.) you save yourself the headache of converting back and forth, by just leaving the property classified as a rental for the entire tax year. With no personal use of the property, things like utilities remain deductible, as I've no doubt they were required in order to actually complete the renovations. Note your mortgage interest, property insurance and property taxes remain deductible for the entire tax year also.
