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. From Pub 527 for rental properties:
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.
Under the property profile, be sure to list your property as a rental during the time of renovations/vacancy. For your renovations, if this is the first time you are renting the property, then you add them into your cost basis for Depreciation.
If you've rented the property in the past, you'll add the total renovations as an asset under Improvements (such as 'remodel'). You add the home and the remodel under the Assets/Depreciation section for your rental.
To review your rental property entries:
@AmandaR1 . Thanks for this explanation.
Does this apply if the property is new to us and has never been rented before? We purchased a property in November 2021, immediately spent about 4 months fixing it up, during which time it was vacant, then rented it in starting in March 2022. I am wondering if I should set up the Schedule E for this property in my 2021 filing or wait until 2022? Thank you!
The Sch E is used once the property is available for rent ... so 2022 in your situation. The cost to improve the property is added to the cost basis for depreciation purposes.