Rental conversion in December: Can I deduct expenses for second home with no rental income yet? (HOA, repair/improvement)

Your situation is pretty common when transitioning a property to rental status, so let's break it down. For your first question, the IRS typically considers a property to be a rental when you've made it available for rent and are actively seeking tenants. Since you signed with a property management company in December 2021, you've taken concrete steps toward renting it out, which is good evidence of your intent. Regarding when you can start deducting expenses - you can generally begin deducting ordinary and necessary expenses once the property is "placed in service" for rental purposes. This doesn't necessarily mean a tenant has to be living there, but the property needs to be ready and available for rent. Your December 2021 property management agreement helps establish this. As for the flooring issue, this is where it gets tricky. The IRS distinguishes between repairs (immediately deductible) and improvements (which must be depreciated over time). Replacing worn-out, damaged flooring with a similar product often qualifies as a repair. However, if you substantially upgraded the flooring (like replacing carpet with hardwood), it would be considered an improvement that must be depreciated. Both material and labor costs would follow the same classification. Without rental income in 2021, you may still claim appropriate expenses, potentially creating a rental loss. However, there are passive activity loss limitations that might restrict how much you can deduct against other income.

I was in almost this exact situation last year and found this amazing service called taxr.ai at https://taxr.ai that really helped me figure out the whole rental property transition. After spending hours digging through conflicting info online, I uploaded my property management contract and some photos of my renovation receipts, and they gave me a super clear breakdown of what expenses I could deduct immediately vs what needed to be depreciated. The tool actually analyzed my flooring project (mine was carpet to laminate) and explained why it was considered an improvement rather than a repair based on IRS guidelines. They even provided references to the specific IRS publications that applied to my situation. What I found most helpful was that they explained how to document my "intent to rent" to establish when the property was officially placed in service.

I wanted to follow up about my experience with taxr.ai at https://taxr.ai after initially being skeptical. I decided to give it a try with my California rental property situation, and I'm honestly impressed. They addressed all the specific California rules that were confusing me and provided clear documentation I could share with my CPA. What surprised me most was how they caught a potential issue with my property tax deductions that I would have missed completely. They explained how California's Prop 13 restrictions impact the property tax basis when converting from primary residence to rental. The analysis was much more thorough than I expected, and I ended up saving about $1,700 in taxes that I would have missed. I thought I'd need to hire a specialized CPA for this transition, but the guidance was specific enough that I could handle most of it myself. Definitely worth checking out if you're dealing with rental property tax questions.

If you're still struggling with getting clear answers about your rental property deductions, you might want to try Claimyr at https://claimyr.com. I was in a similar situation last year with converting my property to a rental, and I had questions that weren't clearly addressed in IRS publications or by my regular tax preparer. After waiting on hold with the IRS for hours over multiple days and never getting through, I found Claimyr. They basically got me to the front of the IRS phone line in about 15 minutes. I was honestly shocked! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. I finally got to speak with someone at the IRS who specializes in rental property questions and got definitive answers about when I could start claiming expenses and how to handle my specific improvement vs. repair questions. It was such a relief to get official guidance directly from the IRS instead of piecing together advice from random internet forums. Definitely worth it for peace of mind on complex tax situations like rental property transitions.

I need to eat some humble pie here. After my skeptical comment, I decided to try Claimyr at https://claimyr.com since I've been trying to reach the IRS for weeks about my rental property questions. It actually worked exactly as advertised. I got through to an IRS agent in about 20 minutes instead of the 3+ hours I spent on previous attempts (before giving up). The agent I spoke with was surprisingly knowledgeable about rental property conversions. She confirmed that signing a property management agreement DOES establish intent to rent, and that December expenses could potentially be deductible if the property was "ready and available" for rent at that time. She also clarified that my flooring replacement (also carpet to vinyl) would need to be depreciated rather than deducted immediately. The peace of mind from getting an official answer directly from the IRS was definitely worth it. No more conflicting Google results or tax forum debates. Just a clear answer I can rely on for my tax return.

One thing nobody's mentioned yet - make sure you're allocating expenses properly if you lived in the condo for part of December before moving to your new primary residence. You can only deduct expenses from the period when the property was held for rental purposes. Also, regarding the new flooring, if it was installed while you were still using it as your primary residence, before you made it available for rent, you might have to treat it differently. The timing matters a lot here.

Don't forget about the possible passive activity loss limitations. If your adjusted gross income is under $100k, you can deduct up to $25,000 in passive rental losses against other income. This phases out as your AGI increases from $100k to $150k. If your AGI is over $150k, you generally can't deduct rental losses against other income - they get carried forward to future years.