Received Jan 2022 rent (for first time) in Dec. 2021 for new renter who moved in Jan 2022...

[Grant4]

I'm renting out 75% of my home and living in the remaining 25%. My renters moved in January 1, 2022. They paid their January rent in December, 2021. Therefore, I need to declare the income in 2021. Where/how do I enter this in TurboTax. It will not allow me to enter the property since my renters did not live their for 15+ days in 2021?  I had to make improvements in late 2021 in order to rent out the main part of the house which I hope to be able to deduct...

Thank you.

[JillS56]

Rental income is reported on Schedule E and this article explains how to report the below article explains how to report the rental income and expenses would typically be entered by following the below steps.

To enter your rental income and expenses:

1. In TurboTax, search for rentals and then click the "Jump to" link in the search result.
2. Answer Yes to the question Did you have any rental or royalty income and expenses?
3. Follow the on-screen instructions as you proceed through the rental and royalties section.

Where to Enter Rental Income and Expenses 

Real Estate Rental Property

However, in your case you were living in the property during 2021 and you incurred expenses in getting the property ready to rent.   Expenses incurred in preparing the property for rent for the *very* *first* *time* are not deductible. DO NOT confuse this with property improvements.

Basically, repair and maintenance expenses incurred "before" the property is placed in service are just flat out not deductible. That would be things like utility bills, lawn care, fixing the broken garage door because it won't open, etc.

The property is in service on the first day a renter "could" have moved in. That is also the same day the "days rented" count starts. This is usually the day you put the FOR RENT sign in the front yard. If on that day a potential renter walked up to you with the deposit and first months rent physically in their hand, gave it to you and you accepted it and they could starting moving in at that very minute, then the property is "in service" on that date.

Unless the above scenario is what occurred you do not have fair rental days for 2021, you are not able to deduct the expenses of getting the property ready to rent, and since you lived in the property for all of 2021 and the property was not rented for at least 15 days, income from this property does not need to reported in gross income for 2021.

The renting of the property does not begin until January 2022 and in this case I would report the income with your 2022 taxes.   

[Grant4]

Thank you for the quick reply. The "For Rent" sign was up on November 15, 2021. I understand that I cannot claim utilities in 2021.

I spent a bunch of money in August - October, 2021 on new appliances, kitchen remodel, paint and refinishing the floors. These expenses I can deduct, right (following depreciation rules) ?

Thank you.

[Carl]

The "For Rent" sign was up on November 15, 2021.

That means your "in service" date is Nov 15, 2021.

I understand that I cannot claim utilities in 2021.

Not "quite" true. You can (and should) "claim" the utilities on SCH E. But since you have zero days rented I don't know for a fact if the expense or pro-rated portion will be "allowed". But you can still claim them.

I spent a bunch of money in August - October, 2021 on new appliances, kitchen remodel, paint and refinishing the floors. These expenses I can deduct, right (following depreciation rules) ?

No, it's not a direct deduction "per-se".  What you have described is a property improvement. The cost of that property improvement adds to your cost basis of the structure only. Since all of this was done "before" the property was available for rent, you do not need to enter it as a separate asset in the assets/depreciation section. Just add the cost of those improvements to your total in the COST box on the screen where you enter COST and COST OF LAND.  The amount in the COST box is increased by the cost of your property improvements. The amount in the COST OF LAND box will not change, since you made no improvements directly to the land itself.

Finally, be aware that the IRS has pulled IRS publication 946-How to Depreciation Property, from their website for revision. So After you get everything entered, please see a copy of it at https://woodacctservices.com/publications/IRS%20How%20To%20Depreciate%20Property%20Pub%20946.pdf. 

Use the worksheet on page 41 of that document and table A-6 on page 74 to manually figure your depreciation amount for 2021. (The math does not, and will not change for 2021, so since this is the only worksheet I can find right now, it will do just fine.)

My bet is, the depreciation amount you figure manually will be quite a bit off from what the program figures. If so, then let me know and I'll talk you through getting it right in the program so you can still e-file.

When dealing with rental property, absolute perfection in that first year is not an option; it's a must. Even the tiniest of mistakes will grow exponentially over time. Then when that error is caught years down the road, the cost of fixing it will not be cheap.