I've been doing a total gut renovation of my future short term rental for the last 10 months. I plan on finishing the reno the end of November. My wife and I make a good living with our W2 jobs and would like to offset our tax bill with a cost seg this year. I've kept a daily journal of all the hours I've worked and separated all the business LLC expenses in owning and renovating the property. My question is if I complete the reno and get a short term rental license from the town but am not able to have a guest stay by January 1st in the eyes of the IRS am I "in service" so I can claim the cost seg.
Being "in service" just means the reno is done, you have the license, and the listing is live accepting bookings. The problem for offsetting W-2 income is the 7-day average stay rule - if you have zero guests check out before Dec 31st, you don't have an average stay of 7 days or less, so most CPAs say you can't use the STR loophole for that year. Since you finish in late November, I'd list it immediately and drop the rate just enough to get one or two real bookings completed before New Year's.
Placing a property "in service" is a requirement for long-term properties. For STRs it is not enough, as @Hubert Grzesiak pointed out. You must establish an "average use period" before the end of the year which requires a minimum of two actual stays. And they must be full-price bookings, not your family or buddies at some nominal price.