Investors & landlords

Apparently, it "appears" that TurboTax has fixed a few of the "quirks" with the program, in their last update. Earlier this year when I was testing for those quirks, they were all still present. I'm not seeing them now. But that doesn't mean they got "all" the quirks. These quirks are not self-evident, and if you don't just "know" about them (through osmosis I guess?) things will just flat out never be right.

May I suggest that you totally and completely delete the rental from the SCH E section of the program entirely?  You also need to delete everything from the "Your Home" section under the Deductions and Credits tab. Then you can start over in the Rental & Royalty Income (SCH E) section of the program.

When dealing with rental property in the first year, and especially when dealing with renting out a part of your home in that first year, it's extremely important that you work through the program the way it is designed and intended to be used. That way, you will deal with the rental "FIRST", and are more likely to have the option to "let the program do the splits" for you. Then I know for a fact, the program will split things like mortgage interest and property taxes between SCH E based on the percentage of your home *and* the period of time it was a rental, and the SCH A for the period of time no part of your home was a rental. It will also pro-rate those costs that you enter in the "rental expenses" section. But still, read the small print on each screen, as if it won't prorate something for you, the small print will tell you that. Then you have to pro-rate that particular expense manually, yourself.

If you do it this way, then when you get to the "Your Home" section under the deductions and credits tab, you need to "read the small print" on each and every single screen, because that small print will inform you of what data is already has.

Now, lets get into the "quirk" I mentioned earlier. I see you are using the online version of the program. I use the CD version. So our screens are not "exactly" the same. But it's close enough that you should be able to figure it out.  Below I cover only the screens that matter here, and not every single screen you will see. But I do cover them in order.

-Three screens in is titled "Do any of these situations apply to this property?" You will select three checkboxes on that screen. 1.  2020 was the first year I rented this property. 2. I rent out part of my home 3. I converted this property from personal use to a rental in 2020.

- Screen titled "Was this property rented all of 2020?" Select NO.

   For "days rented at fair rental price" your day count starts on the first day a renter "COULD" have moved in.

   For "days of personal use" enter the digit "ZERO". Read the note directly below that. It clearly states that the number of days you lived in this property before converting it to a rental *do* *not* count.  Additionally, what is not clarified for "your" specific and explicit situation (so I'm clarifying it here) it's only referring to that portion/percentage of your residence that is "exclusive to the renter". So if you converted one bedroom to rental on 1/7/2020 and you did "NOT" use that bedroom for "ANY" personal use of any type after that date, then you have ZERO days of personal use.

- Screen for "Do you have a home office?"  You must select NO on this screen. A home office is not allowed for residential rental real estate. (things are different for business rentals, so that's why this question is here. )

- Screen titled "Let us calculate your expense deductions for you". Select YES. Then for rental use percenage enter the percentage of the square footage of your house that is "exclusive to the renter". That will typically be only a bedroom. However, if that bedroom has a bathroom attached to it that can only be access from that bedroom, then you can (and should) include the square footage of that bathroom also. (Don't forget the closet in that bedroom, as that's at least another 12 sq feet.)

-Next screen select that yes, you are an active participant.

- Next screen, no you didn't pay for any work that requires you to issue s 1099 of any type.

Keep working though until you are returned to the "Review Your [propertyname] Rental Summary" screen.

- Now elect to start/update Assets/Depreciation.

- Do you have assets for this property that can be depreciated? You *must* answer yes to this.

- A few screens later you get to "Describe this Asset". Select Rental Real Estate Property and continue.

- Select Residential Rental Real Estate and continue.

- Enter a description for this asset (something like "rental bedroom" is fine), along with the total entire cost you paid for your property when you originally purchased it, the portion of the cost that you are allocating to the land (anywhere from 10% to 30% of what you entered in the cost box, typically.), the date you originally purchased the property, and continue.

- Select "purchased new" and "no, I have not always used this item 100% for business". Then select "I used this item for personal purposes before I started using it in this business." For the "date I started using this in this business" enter the first date that a renter "could" have moved in. It is assumed that you did NOT use this room or space for any type of personal use after this date.

Now here's the "quirk" I was talking about.  The last question on this page is "Percentage of time I used this item for this business in 2020 (e.g. 80%)"  That is the wrong question to ask. The program already "knows" the percentage of time, because the program has already figured the percentage of time based on the date you entered above that question. So the question "should" be, asking you for the percentage of floor space that you are renting exclusively to the renter. So for this one question, do not enter percentage of TIME. Instead, enter the percentage of FLOOR SPACE that is exclusive to the renter.  Then continue.

Now click the "show details" checkbox. There you will see the date placed "in service" a rental, along with the percentage of your floor space that was actually placed in service as a rental. If you agree with those numbers, you're good to go and can click that continue button, then click the DONE button.

Now, you can elect to start/update the rental income section, followed by the rental expenses section. But I see that things are even more tricky here, since the last program update.

In the rental expenses, you will enter only those expenses paid for the "whole house" from the date you placed the rental portion "in service".  Lets use the utilities expense category as an example. Utilities include all those utilities that you share with the tenant. Water, electric, cable, internet, etc. So for the sake of simplicity lets say you pay a flat rate of $100/mo for your utilities. Thats $1200 a year. You coverted 10% of your floor space to a rental space on 7/1/2020. That's exactly halfway through the year. So your utilities cost you $600 from 7/1/2020 through the remainder of the year. That's the amount you would enter. With 10% of your floor space exclusive to the renter, the program (not you) will allocate 10% of that, which is $60, to the SCH E. The remainder is just flat out not deductible anywhere on your tax return.

When asked for your mortgage interest, you will enter the total amount you paid, as reported to you on the 1098-Mortgage Interest Statement. The program (not you) will do the math to determine what amount gets allocated to the SCH E based on the percentage of time rented, and percentage of space rented.

Any costs that you enter in the "Miscellaneous Expense" section, you will have to pro-rate yourself based ONLY on the percentage of time rented, and only if applicable. The program will pro-rate "for you" only based on the percentage of space rented.  (man, they really screwed the expenses section up, with their latest program update. I'll address this with the forum moderators later.)