Q. But will turbo tax allow me to do this without entering incorrect data?
A. No. The workaround, in TT, is to say you rented it at fair market value for 365 days.
As you said; If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. TT just doesn't provide that entry option.
Reference:
“Presumption of profit. If your rental income is more than
your rental expenses for at least 3 years out of a period of
5 consecutive years, you are presumed to be renting your
property to make a profit.” https://www.irs.gov/pub/irs-pdf/p527.pdf (pg 25)
Q. Am I allowed to do this?
A. Yes.
Q. How would I inform IRS why I did it?
A. Only by showing on Schedule E that you have a profit. Keep good records of your expenses and income, if you ever have to prove the 3 of 5 years rule was met.
Q. Since it's considered a "for-profit" rental now, can I deduct the repair expenses since they did not exceed the rental income?
A. Yes. You must deduct the expenses even if they are more than the rental income, until you no longer meet the 3 out of 5 years rule. Be sure you are including depreciation, mortgage interest and all other allowable expenses in your profit calculation.
