I don't know enough about 1031 exchanges to be of any help on that front. But as I interpret your post, that's not really the issue. The information I'm providing may be wrong "BECAUSE" this is a 1031 exchange. But it's what I know to be correct without taking the exchange rules (which I'm not up to date on) into account.
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.
Correct. If the property was not "in service" and "available for rent" in 2021, then you have absolutely nothing to report on SCH E concerning this newly acquired property.
We did have mortgage, tax, and contractor expenses in 2021, but no rental income, and it wasn't really listed for rent then.
As far as I'm concerned (based on what I know) the property was personal use from the date of acquisition in 2021 until you actually placed it "in service" in 2022. Therefore, you have absolutely nothing concerning this property to report on SCH E on your 2021 tax return. The only expenses you can claim as SCH A itemized deductions are:
- Mortgage interest (if any) paid in 2021
- Property taxes paid in 2021
Also note that those will be SCH A itemized deductions - meaning they make no difference in your tax liability if the total of all your SCH A itemized deductions does not exceed your standard deduction.
That's it. Note that repair and maintenance cost incurred before the property was "in service" are never deductible. Never have been.
Now if you have property improvements that you paid for, those are depreciated over time and depreciation starts the date you place the property in service. Since that didn't happen until 2022, you won't deal with property improvements until you do your 2022 tax return next year. Do note that property improvements to the structure add to the cost basis of the structure - not the land. That means any property improvements done prior to placing the property in service don't need to be listed separately in the assets/depreciation section. You can just add them to the cost basis of the structure in that first tax year you place the property in service.
Would this fail to show completion of the 1031?
I just don't know the definitive answer to that question.
Are there expenses we had in 2021 that we won't be able to deduct?
I think I addressed that above - but since this is a 1031 exchange I can't vouch for the accuracy of my response on that. There are others in this forum who, when they see this thread, will confirm or correct my information if necessary.
