Rental property deed to my son but still on mortgage how to separate percentage of expenses, rent, etc

[DW448]

I have a rental property that has my son and my name on the mortgage and on the deed. He also lived in the house until he sold it in Dec. 2022. In July 2022 I removed my name from the deed by filing a Warranty Deed with consideration of less than $100, leaving the property in my son's name.  I am unsure how to fill out income tax for both of us. I am filling out for myself as taking half the mortgage interest and taxes since my name is still on the mortgage and I'm still paying. For rent and expenses I am only including rent and expenses between Jan - June 30, date I removed my name from the deed. For my son he would show half the mortgage and interest as he is also on the mortgage. For rent and expenses he would include 1/2 from Jan thru June when I was also an owner and the complete amount from July - Dec, since he was the only person on the deed. Does this make sense? On schedule E it asks 'check to allocate income and expenses using ownership percentage'. Would I put 75% so the dollar amounts get calculated correctly by turbotax?  I was going to leave it at 50/50 as I have filed all previous years(everything divided between myself and my son), but I don't know if that would come back as an error as I deeded it to my son in July 2022. What would be the correct way to list rent and expenses and ownership on both our returns. 

[SharonD007]

Do not allocate the income and expenses at 50% for you and your son since you indicated that your name was only on the deed for half of the year. You can allocate the income and expenses as you indicated by entering that you owned 25% of the rental property and your son owned 75% and letting TurboTax do the math for you. This will be accurate if the income and expenses are constant during the year. The other option is for you to select No at the Interview screen that asks you “Want us to divide the expenses for you?”  You would calculate half the income and expenses for the first half of the year and enter those numbers on your return. Your son would enter the sum of half the income and expenses for the first half of the year and all the income and expenses for the last half of the year on his tax return. 

For instructions, please review the TurboTax article Where do I enter income and expenses from a rental property?

[DW448]

Thank you. That was my thought. Another question. Turbo tax asks if I disposed of the property, sale, gift, etc. I did dispose of my share with the warranty deed which said 'in consideration of less than $100'. So as I understand this to mean it is not a gift and I don't have to file a gift tax form. In turbo tax in the depreciation section it asks if the business was disposed of in 2022, sold, stolen, given away, destroyed....  I say yes, then there is a question for special handling, I answer no, because it is not a gift or any of the other options. Next question is for sale information, the amount received for asset sale price/expense and land sale price/expense. I left those blank because I did not receive money for deeding the house to my son. Is this correct?  Thanks. 

[RobertB4444]

No, it's not.  If you show that you sold the house for zero dollars you're going to have a huge loss on the property that you are not allowed to take.  Whether you like it or not you gave the house away so you can't take a loss on the sale that benefits your tax return.  You have two choices on how to enter it-

You can enter it as a gift or you can enter it as a sale for the exact amount that the property is worth on the date of the sale.  The first is accurate because it is technically a gift but I know that isn't what you want to enter.  The second is accurate because the basis is transferring to your son.  The property he will be depreciating going forward should have the exact same basis as the property does when you transfer it to him.  The second one may require that you do a little math but the sale of the property should zero out exactly when you're done.

@DW448 

[DW448]

thank you. My son was already on the deed and mortgage. I just removed myself from the deed. So would that be more like a gift then because he was already 1/2 owner. A sale would have not been for the whole.

[PatriciaV]

RobertB4444 is correct in that you "sold" your half of the property to the other owner, for less than $100. To accurately report this transfer without claiming an inappropriate loss, you should report on your tax return that you "sold" your half for same amount as your basis on that date. In other words, you are reporting zero gain or loss, which is correct. 

You can report this as a gift for the same amount, again resulting in zero gain or loss. Remember that you are limited to $16,000 per year per recipient for gifts, otherwise, you may need to file a Gift Tax Return.