Rental property (converted from primary residence) on market starting Aug ‘20. I didn’t find tenants until Jan ‘21. What rental expenses can be claimed in 2020?

[sshetti]

1] Can property tax, HOA, Interest, cleaning, painting and remodeling claimed as expenses in 2020?

2] Does interest, HOA, property tax in 2020 need to be prorated?
3] Can I claim painting and remodeling expenses after Aug ‘20 in full?

[Critter-3]

1] Can property tax, HOA, Interest, cleaning, painting and remodeling claimed as expenses in 2020?  You need to read the IRS Pub 527 to answer all the questions you have ... https://www.irs.gov/pub/irs-pdf/p527.pdf

2] Does interest, HOA, property tax in 2020 need to be prorated?  Yes ... all common expenses must be prorated.

3] Can I claim painting and remodeling expenses after A   There is a difference between repairs that can be expensed   and improvements which must be depreciated.  https://www.irs.gov/pub/irs-pdf/p946.pdf

One thing I will caution you on ... in the TT program ... once you converted the property to a rental (even if you did not get a renter in 2020) you did NOT use the property for personal use at all so zero is the answer ... read all the words on all the screens carefully as you complete the interview.  And the program will not do a good job of prorating the common expenses  so do them yourself.  

[sshetti]

Thanks for the response, @Critter-3. I have included my understanding below, let me know if you recommend any changes?

Pro-rated common expenses (for Aug - Dec 2020 i.e. 5 months)

- HOA fees

- Property tax

- Mortgage Interest

- Home insurance

Repairs: Add as expenses

- Cleaning 

- Painting

Improvements: Depreciate over multiple years (27.5)

- Kitchen upgrades

- Bathroom upgrades

- Light fixtures

[LynnN82]

You are correct that those expenses can qualify and should be added to the depreciable basis of the home. The amount eligible for depreciation of the home  is the lesser of your cost or its fair market value on the day you converted it to rental.  The improvements you list should also be depreciated over the same 27.5 years as the home.  Remember to exclude the value of the land the home is on from your depreciation calculation.

You may begin claiming a deduction for depreciation when the home was "offered for rent."  TurboTax will calculate your allowable rental loss based on your other adjusted gross income and the passive activity loss limitaion rules . . . sounds complicated but it will not be complicated for TurboTax