The real question is whether it was available for rent for all of 2020. Your property must be available for rent or it will not be allowed on the federal return either.
Review IRS Publication 527 -Not Rented for Profit and Vacant Property
Please note if the property was not available for rent for all of 2020, you will not enter any expenses under the rental section. You would be able to get itemized deductions for mortgage interest and real estate taxes under Schedule A if you can itemize deductions.
If you did have the rental available for rent then review the information below. It may also sort out the state issue.
If the property remains classified as Residential Rental Real Estate.
When you start working through the property do NOT select the option for "I did not rent or attempt to rent this property in 2020". If you select that option, then the program will likely FORCE you to delete that property entirely.
For "days rented" (if asked for this) enter a 1.
For rental income, you may not be able to leave it blank. So enter the digit ZERO for rental income.
Any rental expenses incurred can and should be entered.
Any property improvements done after the last renter moved out are still entered in the Assets/Depreciation section.
- Basically, you need to add any property improvements ONLY if there was a tenant, after completion of this expense, so as to show the increased cost basis on the property, prior to reporting any future sale. This in effect, reduces your taxable gain on the sale, or increases your losses on the sale if sold at a loss.
Continue through the rental activity and then see what happens on your state return. It's a good idea to review your state rules for rental property to see if this is the reason they are disallowing the rental (Schedule E).
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