A property that's held as a rental during improvements or while being sold, can still be reported as a rental on schedule E. This allows you to carry forward any losses and deduct certain expenses with maintaining the property.
The IRS specifically allows this type of reporting. This is clarified in IRS Publication 527:
Vacant rental property.
If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. However, you can’t deduct any loss of rental income for the period the property is vacant.
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