Since you did not rent or attempt to rent out the property in 2019, it is considered a 2nd home for tax purposes. So you will not report anything concerning this on SCH E with your 2019 taxes. The only thing you can claim on your 2019 taxes is any property taxes and mortgage interest you paid on the property in 2019. That's it, with no exceptions. (But all is not lost. Keep reading.)
You will claim your mortgage interest and property taxes on SCH A. In the program that will be in the "Your Home" section under the Deductions and Credits tab - the "same" "exact" "place" where you claim those deductions for your primary residence. That's it for the 2019 tax return.
Now next year when you do your 2020 tax return, that's where you will indicate that you converted that property from personal use (as a 2nd home) to residential rental real estate. Then "AT THAT TIME" and not before, you will be able to claim things like your sales expenses and the such.... and it "does" "not" "matter" that you may have actually paid those expenses in 2019 either.
For your 2020 tax return, please print the below information and file it away with your 2020 tax information. You will need it. I guarantee it. Since 2020 taxes is the first time you will be dealing with rental property, I also highly recommend you use the CD/Desktop version of TurboTax 2020 when you complete your 2020 tax return next year. It'ssignificantly more user friendly than the online version (by far) and much easier to navigate and deal with/fix mistakes. Rest assured, for your first time dealing with SCH E you will make mistakes.
So it is "IMPORTANT" that once you have completed your 2019 tax return and "AFTER" it has been accepted by the IRS, you need to download both the PDF and the .tax2019 file to your computer ***NOW***. Then back it up to some kind of external storage device. YOu will need it next year for sure. If you do not do this ***NOW***, then you will have to $PAY$ $MONEY$ next year just to get your .tax2019 tax file.
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.
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 "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
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 or 2nd home, 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.
RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED
Property Improvement.
Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.
To be classified as a property improvement, two criteria must be met:
1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.
2) The improvement must add "real" value to the property. In other words, when the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.
Cleaning & Maintenance
Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.
Repair
Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.
Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.
However, when you do something like convert the garage into a 3rd bedroom for example, making a 2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.
