@Carl I found your previous posts on this really helpful, and I wanted to ask for your advice on something similar.
I did a 1031 like-kind exchange from a previous rental condo into a rental house in November 2021. The received property was rentable the day we took ownership, but we chose to spend about 4 months fixing it up before we put it on the market. We listed in March 2022 and started receiving rental income in April 2022. I have recorded the disposition of the old property and exchange in TurboTax for 2021. That all seems good. But when I go to add the received property in Schedule E, it won't let me add it because it wasn't available for rent in 2021. We did have mortgage, tax, and contractor expenses in 2021, but no rental income, and it wasn't really listed for rent then.
I see two options:
(1) Don't file the new Schedule E for 2021. Start up the Schedule E for the new property as part of 2022 filing. Add the remodel costs to the basis at that time. Cons: Would this fail to show completion of the 1031? Are there expenses we had in 2021 that we won't be able to deduct?
(2) Establish the new Schedule E for 2021. State that the property was available for rent for 1 day and we received zero income. Adjust the basis by the work done in 2021. Then next year adjust the basis again by the remaining work completed in 2022. Cons: Not really true that we tried to rent. We could have, but the intent all along was to fix before renting. Pros: Seems more true to the rules on depreciation.
I'm leaning toward option 1, but pretty unsure. Thank you!
