Not sure this is correct category but looking for someone who knows about deductions on rental property as I have never had rental property before. A little background. I live in IL but have a vacation condo in WI that I have owned since 2015 and have only used it for a 2nd home, not rental. But the expenses have gotten too high for how often we use it. I don’t want to sell so we decided that we would start renting it out and using it occasionally when it has an open weekend. The problem is our condo association recently adopted a new rule that says only 25% of the 224 units in the association can be rentals at one time because of insurance reasons and that 25% has already been met. So my unit has to go on a waiting list until a few rentals are sold or no longer used as rentals. That could take a year or two. So even though my intention is to use it as a rental it may be awhile before I receive any income from it. Can I start deducting expenses now? TurboTax had a topic that says as long as I am trying to rent it the IRS allows you to deduct expenses, even if it is vacant. I would say that putting it on a waiting list is trying as there is nothing else I can do.
I would caution you to become very familiar with the rules on personal use of a rental property. If you (including family and friends who are not paying a fair rental rate) use the property more than 10% of the nights it is rented for the fair rate, or more than 14 nights a year, whichever is less, you will have to pro-rate all of the expenses between personal and rental, while still reporting all of the income. IRS Pub 527 p527.pdf (irs.gov) is a good resource.
I would point out that if your condo association hadn’t adopted that rule for “insurance reasons”, it’s very likely that your insurance costs would have increased substantially, if you were able to find insurance at all.
No. It’s not considered a rental property until it’s “placed in service”, which is when it’s ready and available for rent. Since your condo association is not allowing you to rent the property out yet, it’s not available for rent. Therefore, it’s not considered “in service”, so you cannot deduct expenses, including depreciation.
From Pub 527:
Does the TurboTax discussion mention that the property has to already be placed in service? If not, it’s not providing the entire context. Putting it on a waiting list is not enough to place the property in service as a rental, because nobody can rent it yet.
Edited to add: Here are a couple of examples of when a property is placed in service from IRS Pub 527:
As you can see, the critical factor is being available to be rented.
AJ