Pub 535 does not apply to a SCH E business. (Yes, rental property is a type of business). Start-up costs are not allowed for long term rental property reported on SCH E. Never have been.
Now you'll see numerous websites, as other posts in this forum that say rental property startup costs are deductible on line 19 of the SCH E. This is not true for SCH E rental property that produces passive income. There's been discussion on this over the almost 20 years I've been using TurboTax. For those who have done it, I've yet to hear of anyone being audited on it. However, with the IRS currently hiring an additional 87,000 agents to the almost 80,000 they already have, claim startup expenses on SCH E at your own risk.
Basically, start-up costs are expenses paid in the process of getting a business to a state of "open for business". When it comes to a rental, there's no way on this green earth you'll convince anyone that 8 months worth of utilities was "required" to be paid as a condition of being "open for business". In fact, you don't even need the utilities turned on at all before a tenant moves in. The tenant can (and usually does) take care of that.
Now your utility costs are deductible from the date the property was "available for rent". But it's not a start up expense. It's included as a normal rental expense on line 17 of the SCH E.
It's not all that uncommon for a landlord to have utility expenses either. With my three rentals, utilities are in the tenant's name. When they move out they don't do a cut-off. Instead, we work together and the utilities are transferred to me. Typically, billing to me as the landlord starts on the move-out date.
When I get a new tenant contracted to move in, I make sure they know I'm requesting a cut-off for their move-in date. Then they contact the utility companies, provide a copy of their rental contract, and change my cut-off order to a transfer to them.
So for the period of time the property was vacant, I will have valid and deductible utility expenses.
Basically, you can deduct utility expenses on line 17 of the SCH E, starting from the date you put the "for rent" sign in the front yard. Don't worry about prorating based on the billing period. It's not going to make enough of a difference to matter really.
Say your billing period ends on the 20th of each month and you put the rent sign in the front yard on the 1st of August and get a renter moved in on the 15th. When you received the bill for August, go ahead and claim the entire bill. You'll be fine.
