Converting primary home to rental property - can I deduct expenses before receiving rental income? (HOA, repairs, flooring)
I just purchased a new house in November 2022 that's now my primary residence. The timing is a bit awkward for tax purposes, and I'm confused about my old condo. For my old condo (soon-to-be rental), I had new flooring installed between October-December 2022. The old flooring was from the 1990s, had significant water damage from a pipe burst, and was pulling away from the baseboards in several areas. I've signed a contract with a property management company in December 2022, but the lease with actual tenants won't start until February 2023. So no rental income for the 2022 tax year. My questions: 1. Does the IRS consider my old condo a rental property for 2022 tax purposes, even though I had no rental income that year? 2. When can I start deducting expenses like HOA fees? December 2022? February 2023? Or not until it's officially generating income? 3. I'm confused about the flooring replacement - is this a repair (deductible) or an improvement (not deductible)? The IRS website says: >...You can deduct the costs of **certain materials**, supplies, **repairs**, and maintenance that you make to your rental property to keep your property in good operating condition... >...You may not deduct the cost of improvements. A rental property is improved only if the amounts paid are for a betterment or restoration or adaptation to a new or different use... Can I deduct the flooring costs (materials and/or labor) for 2022 even with no rental income? The property management agreement was signed in December 2022, but tenant lease starts February 2023.
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StarSeeker
The key thing to understand here is the concept of "placed in service" - which is when your property officially becomes a rental in the eyes of the IRS. Your property is considered "placed in service" when it's ready and available for rent, not necessarily when you actually have a tenant or start receiving income. Since you signed with a property management company in December 2022 and were actively seeking tenants, you have a strong case that the property was placed in service in December 2022. For the flooring question, this is a gray area that depends on several factors. Generally, if you're replacing something with a similar item (carpet with carpet), it's more likely to be considered a repair. But if you're upgrading significantly (like carpet to hardwood), it might be considered an improvement. Since you're replacing damaged flooring that was very old, there's a good argument for classifying it as a repair rather than an improvement. As for deductions, you can begin deducting ordinary and necessary expenses (like HOA fees) from the month the property is placed in service (December 2022 in your case). Even without rental income in 2022, these expenses can create a rental loss that might be deductible depending on your income level and active participation in the rental.
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Anastasia Sokolov
•This is super helpful, thank you! Just to clarify - so even though I only had the property management agreement for one month in 2022 (December), I could potentially deduct that month's HOA fees and other expenses? And for the flooring, I actually replaced old carpet with vinyl plank. Does that change your opinion on whether it's considered a repair or improvement?
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StarSeeker
•Yes, you can likely deduct December's HOA fees and other ordinary expenses since the property was placed in service that month based on what you've described. For the flooring, replacing carpet with vinyl plank is a bit more of a gray area. The IRS might consider this an improvement rather than a repair since you're changing the material type. However, since you're replacing something that was damaged and at the end of its useful life, there's still an argument for repair. If you classify it as a repair, be prepared to justify your reasoning if questioned. Alternatively, if treated as an improvement, you would depreciate the cost over the property's useful life (27.5 years for residential rental) rather than deducting it all at once.
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Sean O'Donnell
I was in a similar situation last year and found an amazing service that helped me figure out all my rental property tax questions. I was completely lost about what I could deduct and when my property officially became a "rental" in the eyes of the IRS. I tried reading IRS publications but kept getting different interpretations each time. I discovered https://taxr.ai and it was a game-changer. You upload your tax documents and rental agreements, and they analyze everything to tell you exactly what you can and can't deduct. It saved me from making a costly mistake with my flooring replacement (which was similar to yours). They even explained the "placed in service" rules in a way that actually made sense. The best part was they found several deductions I had no idea I qualified for - ended up saving me over $3,000 on my taxes. Worth checking out if you're dealing with rental property tax questions like this.
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Zara Ahmed
•Sounds interesting, but does it work with complicated situations? I have a similar scenario but with rental properties in two different states with different tax rules. Can this handle that level of complexity?
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Luca Esposito
•I'm always skeptical of these tax services. How does it compare to just talking with a real CPA who specializes in rental properties? And does it keep up with the new tax laws? I've been burned before by software that was using outdated rules.
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Sean O'Donnell
•It definitely handles complex situations - I actually have properties in different states too, and it accounted for the different state tax implications. The system is built to handle multi-state scenarios and even deals with things like partial year rentals and mixed-use properties. For your question about CPAs versus this service - I've used both, and what I like about taxr.ai is that you get consistent, documented advice that you can reference later. My experience with CPAs varied wildly - some were great, others missed obvious deductions. The system is updated regularly with the latest tax code changes and IRS rulings, which was important to me after all the recent tax law changes.
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Zara Ahmed
Wanted to follow up about my experience with taxr.ai after trying it based on the recommendation here. I was really impressed! I uploaded my property management agreement, receipts for the renovations I did, and some other documents. The analysis showed that I could indeed claim certain expenses from the date I signed with the property management company, even without tenants yet. The most helpful part was their breakdown of which renovations counted as repairs vs. improvements. They explained that my bathroom renovation had elements of both - the new toilet and fixing plumbing were repairs (fully deductible), while the tile work and vanity were improvements (had to be depreciated). This matched exactly with what happened during your flooring situation - they would break down which portions could be immediately deducted vs. depreciated. Saved me hours of research and probably prevented an audit flag. Just thought I'd share since I was in almost the identical situation as the original poster.
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Nia Thompson
If you're still trying to sort this out, you might want to call the IRS directly to get an official ruling on your specific situation. I had a similar rental property question last year and decided to go straight to the source. However, calling the IRS was a complete nightmare - I spent HOURS on hold, got disconnected twice, and when I finally reached someone, they gave me vague answers that didn't really help my situation. Then a friend recommended https://claimyr.com which is this service that basically waits on hold with the IRS for you. You can watch their demo at https://youtu.be/_kiP6q8DX5c to see how it works. They called, navigated all the phone menus, waited on hold for over 2 hours, and then called me when they had an IRS agent on the line ready to talk. I got a clear answer about when I could start claiming expenses on my rental (which was similar to your situation) and exactly how to handle some renovation costs. The agent even emailed me documentation I could keep for my records in case of an audit.
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Mateo Rodriguez
•Wait, how does this actually work? They just sit on hold for you? And how much does it cost? Seems too good to be true considering how impossible it is to reach someone at the IRS.
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GalaxyGuardian
•This sounds like a complete scam. There's no way the IRS would allow a third-party service to "wait on hold" and then transfer calls. They have strict authentication requirements. I'm calling BS on this entire thing.
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Nia Thompson
•It's actually pretty straightforward - they use a call system that maintains your place in the IRS queue, and when an agent picks up, their system calls you and connects you directly. You're the only one who speaks to the IRS agent - they just handle the waiting part. For the authentication concern - you're absolutely right that the IRS has strict requirements. That's why Claimyr never actually speaks with the IRS on your behalf. They simply notify you when an agent is on the line, and then you handle all the authentication and discussion directly. Think of it more like a sophisticated call-back system focused specifically on the IRS.
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GalaxyGuardian
I need to eat some crow here. After being completely skeptical about that Claimyr service mentioned above, I decided to try it as a last resort because I've been trying to get through to the IRS for WEEKS about a similar rental property issue. Holy crap, it actually works exactly as described. I got connected to an IRS agent after their system waited on hold for almost 3 hours (which I didn't have to sit through). The agent confirmed that in my case - which sounds similar to yours - my property was considered "placed in service" when I signed with the property management company and made it available for rent, NOT when I got my first tenant. They also clarified the repair vs. improvement question for flooring specifically. In my case, replacing carpet with similar carpet was a repair, but going from carpet to hardwood was considered an improvement that needed to be depreciated. The agent said they look at whether you're upgrading the material significantly or just replacing what was there. I'm still shocked this service worked so well. Saved me a day of being stuck on hold and got me definitive answers.
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Aisha Abdullah
Just wanted to add my experience as someone who went through this exact situation last year. I converted my primary home to a rental in November 2022, put new flooring in, and didn't get tenants until February 2023. My CPA told me that "placed in service" date is when you make the property available and ACTIVELY try to rent it. Having a property management agreement in December 2022 is definitely good evidence of this. He said I could deduct December HOA, utilities, insurance, etc. even though I had zero rental income that year. For the flooring, he made me split it into two categories: 1. The portion that was clearly replacing damaged materials (about 60% of my project) was classified as a repair and fully deductible in 2022 2. The portion that was upgrading/improving (going from carpet to luxury vinyl) had to be depreciated over 27.5 years This created a rental loss in 2022 that I was able to use against my other income (subject to passive activity limits). Made a big difference on my tax bill!
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Anastasia Sokolov
•This is so helpful! Did your CPA require any specific documentation to prove the "placed in service" date? I have the property management contract, but I'm wondering if I should gather anything else just to be safe.
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Aisha Abdullah
•My CPA wanted several things to document the "placed in service" date: 1. The signed property management agreement (most important) 2. Listing photos and official listing date from the property management company 3. Evidence of any advertising for tenants (online listings, etc.) 4. Email communications showing we were actively trying to find tenants He also suggested I keep all receipts for the flooring work along with photos of the damaged original flooring to justify the "repair" classification for the damaged portion. Having documentation of the water damage was particularly important in our case. Better to gather too much documentation than not enough, especially if you're claiming a loss in a year with no rental income. It raises the audit risk a bit, but if you have good documentation, you should be fine.
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Ethan Wilson
Has anyone used TurboTax for this situation? I'm trying to figure out if their rental property section can handle this kind of scenario with no income but expenses in the first year. Their interface is confusing me...
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Yuki Tanaka
•I used TurboTax last year for this exact situation. Their rental property section actually handles it pretty well. When you add the property, there's a field for "date placed in service" - put your December 2022 date there. Then it will let you enter all expenses even if you show $0 for income. For the flooring, TurboTax will ask if each expense is a repair or improvement. If you classify as repair, you deduct it all immediately. If improvement, it adds it to the depreciation schedule. The key is being consistent with how you classify things. One tip: make sure you answer "Yes" to actively participating in the rental when it asks. This is important for being able to deduct losses against other income (up to $25,000 depending on your overall income level).
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