You cannot report a rental on your 2025 tax return if the property wasn't "Placed in Service" until 2026.
According to the IRS, a rental property is only "Placed in Service" when it is ready and available to be rented. Because you were doing improvements and are not renting it until 2026, the IRS considers your 2025 activity to be "pre-opening" or "startup" activity, which isn't reported on a 2025 Schedule E.
Since you can't start the rental section yet, here is what you do with those 2025 costs:
- You do not deduct these in 2025. Instead, keep all receipts and add them to the Cost Basis of the house. When you finally set up the rental in TurboTax on your 2026 return, you will enter the purchase price plus all these 2025 improvements as your total starting value for depreciation.
- Costs like travel to the property or background check fees are also considered "Startup Costs". You save these and report them on your 2026 return. The IRS allows you to deduct up to $5,000 of these in the first year the rental actually opens.
- For the Mortgage Interest/Taxes - while the house is being renovated and not yet a rental, you generally treat it as a second home. You may be able to deduct the mortgage interest and property taxes as Itemized Deductions on Schedule A for 2025, provided you meet the standard deduction threshold.
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