when you have residential rental real estate, it is not common for you to show a profit at all - especially if you have a mortgage on the property. When you add up the deductible expenses of property taxes, mortgage interest, property insurance and the depreciation you are required to take by law, those four items alone will easily be more than the total rental income received for the year. Add to that other deductible rental expenses such as repairs and maintenance, and you're practically guaranteed to show a loss every single year.
Now for your first year of dealing with rental property, absolute perfection on the tax return is not an option; it's a "must". Even the tiniest of mistakes will grow exponentially over time. When you catch the error years down the road (assuming the IRS doesn't catch it first) the cost of fixing it "will" be high. Therefore the below guidance is offered to help you ensure absolute perfection.
Rental Property Dates & Numbers That Matter.
Date of Conversion - If this was your primary residence or 2nd home before, then this date is the day AFTER you moved out, or the date you decided to lease the property – whichever is later.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter was contracted to move in, and/or "could" have moved in. That would be your "in service" date or after if you were asked for that. Vacant periods between renters do not count for actual days rented. Please see IRS Publication927 page 17 at https://www.irs.gov/pub/irs-pdf/p527.pdf#en_US_2020_publink1000219175 Read the “Example” in the third column.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence, 2nd home, or any other personal use reasons after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.
