We bought a second home in 2020 do I add that to my return

[RayW7]

Yes there are available deductions related to a second home.  However, if you rent out the home different rules may apply.

For a Second Home-

Mortgage interest

If you use the place as a second home—rather than renting it out—interest on the mortgage is deductible within the same limits as the interest on the mortgage on your first home.

• For tax years prior to 2018, you can write off 100% of the interest you pay on up to $1.1 million of debt secured by your first and second homes and used to acquire or improve the properties. (That's a total of $1.1 million of debt, not $1.1 million on each home.) The rules that apply if you rent out the place are discussed later.
• Beginning in 2018, the limit is reduced to $750,000 of debt secured by your first and second home for binding contracts or loans originated after December 16, 2017.
• For loans prior to this date, the limit is $1 million ($1.1 million without the $100,000 home equity portion).

Property taxes

You can deduct property taxes on your second home, too. In fact, unlike the mortgage interest rule, you can deduct property taxes paid on any number of homes you own. However, beginning in 2018, the total of all state and local taxes deducted, including property taxes, is limited to $10,000 per tax return.

If you rent out the second home-

Lots of second-home buyers rent out the property part of the year to get others to help pay the bills. Very different tax rules apply depending on the breakdown between personal and rental use.

If you rent the place out for:

• 14 or fewer days during the year, you can pocket the rental income tax-free. Even if you're charging $5,000 a week, the IRS doesn't want to hear about it. The house is considered a personal residence, so you deduct mortgage interest and property taxes under the standard rules for a second home.

• More than 14 days, you must report all rental income. You also get to deduct rental expenses, and that gets complicated because you need to allocate costs between the time the property is used for personal purposes, and the time it is rented.

[stevec328]

What if I bought the house using savings but put title in my single member LLC name taxed as a disregarded entity and then had to rehab the property before it could be rent ready.  So I bought in 2020, rehabbed and then rent it out in 2021.  Where do I enter the property in the LLC name (business schedule C or on my personal return)?...As for 2020 I only had expenses for the rehab, utilities and taxes.

[Irene2805]

You can add the property as a business asset, but not until the property is placed in service or available to use as a rental--2021. Since you are a single-member LLC the rental is reported on Schedule E in your personal return (1040).

For more information see IRS Pub. 527 -  Residential Rental Property

@stevec328

[stevec328]

Okay, so if I understand you correctly, I don't do anything on my tax return for 2020.  I wait until 2021 to add the asset as a rental.  Is this correct?

What do I do about the 2020 expenses on my new property that I bought and began to rehab (buy materials, pay contractors, pay utilities, pay property tax, etc.) ?  Do I wait until 2021 and put in all the expenses (both for 2020 and 2021 (i.e. carry expenses forward?)

...or do I add in the 2020 expenses now and if so, where do I put them if I don't add the asset to my return because if did not go into service yet?

[AmyC]

1. Yes, wait until in service, 2021.

2. 2020 expenses are all lumped together and added to the basis of the house, except for the real estate tax, it can go on your sch A.

3. No, 2020 expenses will increase the basis while 2021 expenses after renting will be listed out and deducted.

Example:

• 2020 Purchase house for $100,000.
• 2020 Spend $60,000 fixing it up to be rented.
• 2021 Rent house, expenses of repairs, mortgage interest, tax, insurance $8,000.
• 2021 taxes: List asset of house, basis equals 100,000+ 60,000 = $160,000 basis. Take out land value and you have your depreciable asset figure.
• list expenses: $8,000 divided into proper categories.

The IRS says that the property must be held out for rent for expenses to be taken. Here are the full rules from the IRS for Rental Income and Expenses. The IRS also has an interactive tax assistant tool to help with determining expenses.  

IRS ITA for rental expenses.

Related:

• IRS Pub 527 for Rental Property
• What kinds of rental property expenses can I deduct?