The house was listed in October 2020
I bet you thought this was going to be easy. 🙂 We all did when we got started in the rental property stuff. So you're not alone here. Been there. Done that. Got the T-Shirt.
Legally, you can report things on SCH E as a part of your 2020 tax return. But is it going to be worth it?
As I see it, you'll have three months of utility bills. Lets say they total $400, which is really kinda high for vacant property. But I'll go with it.
Then you'll have 3 months worth of depreciation at most. Since I don't know the value of your structure or any other property improvements, lets pick a number out of thin air for depreciation, in the amount of $2,500. That gives you $2,900 of costs on this property for 2020.
Your repair and maintenance costs incurred before Oct 1 2020 are flat out not deductible, because those costs were incurred "before" the property was available for rent. Sucks, but that's the rules. I don't make the rules, congress does.
So with $2,900 of rental expenses and $0 rental income in 2020, you have nothing to deduct those costs from. Rental income and expenses are considered "passive". Therefore, you can only deduct your passive rental expenses from your passive rental income - of which you have $0 income to deduct them from.
Now, there is a few rules that will allow you to deduct each tax year, a maximum of $25K of your passive expenses from your "other" ordinary income. One of those rules is that you must be "actively involved" and "materially participate" in the management of your rental property. While you "could" be actively involved and materially participate, if you farmed things out to a property manager or rental management company (you say you did) then you may not be actively involved and materially participating. That would nix this right there.
But lets assume you can do this. Is a deduction of $2,900 (give or take) of taxable income "really" going to make that big a difference in your 2020 tax liability? Maybe it'll increase your refund by $10, but I don't think it would be even that much. Can only speculate here, because I have no clue what tax bracket you fall in to.
I myself would let things wait until next year when it's time to file the 2021 tax return. Then on that 2021 tax return I'd place the property "in service" on 1/1/2021 and go from there. I wouldn't sweat it for the 3 months of expenses incurred at the end of the prior tax year. Especially since depreciation is not a permanent deduction (unless you die while you own it.)
