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Fishnfol
Returning Member

We bought a new rental property in 2020 but didn't rent it till 2021

We bought a second home in 2020 with the intent to rent it out. Due to the remodel it wasn't ready to rent until January 2021. I paid points, interest and taxes for this 2020 purchase but made zero in rental income. I have been told to put this under investment expenses and not home mortgage expenses. I can't figure out how to do this since I made no rent in 2020. What am I doing wrong?

 

 

 

5 Replies
ColeenD3
Expert Alumni

We bought a new rental property in 2020 but didn't rent it till 2021

It becomes rental property the moment it is placed in service and ready and available to rent. Until that time, there is no reason your can't include your mortgage interest and property taxes on Schedule A.

 

From the IRS:

Placed in service: Ready and available for a specific use whether in a trade or business, the production of income, a tax-exempt activity, or a personal activity.

bc999lonsdale
Returning Member

We bought a new rental property in 2020 but didn't rent it till 2021

How do you report this in TurboTax?  The section where you add the rental property requires rental income.  If a $0 is entered, it gives an error message claiming that it can't be entered as a rental property (rental or royalty) unless it has rental income.  So, how do you resolve?

ColeenD3
Expert Alumni

We bought a new rental property in 2020 but didn't rent it till 2021

Again, you can't enter it in 2020. It was not placed in service and ready to rent. On your 2021 tax return, you will include the purchase price plus improvements and purchase settlement charges to create your adjusted basis for depreciation.

bc999lonsdale
Returning Member

We bought a new rental property in 2020 but didn't rent it till 2021

In my case, it was ready and available to rent. There was just no renter placed yet. However, it was ready and available and already placed into service. So now what?  Why won’t TurboTax recognize it and allow me to enter it now with $0 income?

ToddL99
Expert Alumni

We bought a new rental property in 2020 but didn't rent it till 2021

Enter "$1" as the rental income. 

 

This will not have any effect on your tax calculation and will not generate an error in either TurboTax or with the IRS.  From an economic perspective, it is accurate - your 2020 rental income was virtually "0".

  

There are many places in TurboTax where you must make a non-zero entry, primarily to let the program know that you answered the question and that the answer makes some sense.  

  

In this case, entering "$1" tells the program that you didn't forget to answer the question and that you had at least some rental income in 2020 to justify your expenses and deductions. You can also enter a "$1" miscellaneous expense ("Rent offset") to correct the overstatement of rental income.

 

(As @ColeenD3 stated, It becomes rental property "the moment it is placed in service and ready and available to rent." Once "placed in service", you can claim all related rental expenses.

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