why on the 2021 turbo tax software shows you can indicate you are living in one of the multi units
Clarification: You are not using TurboTax 2021. That software does not yet exist and will not be released until Dec 2021 at the earliest. You are using TurboTax 2020.
That's one way you can enter this as an entirely new property. You can enter it as a multi-family unit where you are living in one of the units. But your in service date would be one day after you converted the entire property to personal use. However, I don't recommend you do it this way, because if you later convert the 3-bedroom back to a rental in the future, you'll have to jump through the same hoops you're jumping through right now.
-First, you need to figure what percentage of the total depreciation taken on the property applies to the 1-bedroom that was still rented out. So figure what percentage of the total floor space of the entire structure is the 1-bedroom unit. For the sake of making the math simple, I"m going to pick a percentage out of thin air, and say that the 1-bedroom unit occupies 35% of the total floor space of the structure.
- Next, multiply the total depreciation taken (which you totaled up and wrote down earlier) by the percentage of floor space the 1-bedroom occupies, to get the total amount of prior depreciation that applies to the 1-bedroom. Write that figure down and label it "1-bedroom depreciation taken".
- Next, look at your cost basis in the entire structure, and multiply that by by the percentage of floor space the 1-bedroom occupies. This gives you your "temporary" cost basis of the 1-bedroom unit.
- Subtract the amount labeled "1-bedroom depreciation taken" from this temporary cost basis for the 1-bedroom unit. This is your new cost basis for the one bedroom unit. Write that down and label it "1-bedroom cost".
- Now multiply the "cost of land" by that same percentage. Write down the answer and label it "cost of land 1-bedroom unit"
- Now in the Rental & Royalty Income (SCH E) section of the program elect to add another rental and fill in the details for that specific unit. The in service date for the 1-bedroom unit will be one day "AFTER" you converted the entire structure to personal use.
- Your COST will be the amount you wrote down and labeled "1-bedroom cost".
- Your COST OF LAND will be the amount you wrote down and labeled "cost of land 1-bedroom unit"
- Day rented: THE WHOLE YEAR
- Days of personal use: **********ZERO*********** (if asked for that, I expect you won't be asked this.)
For the property taxes and mortgage interest amounts you can claim, the math will be as follows:
- Total paid in property taxes, divided by 12.
- Multiply that answer by the number of months the 1-bedroom is in service. Since you placed this asset in service in Dec (I assume) you'll only be multiplying by the digit one.
- Now multiply that answer by the percentage of floor space occupied by the 1-bedroom unit. The answer is the amount of property taxes you can claim on this 1-bedroom for the month of December.
- Subtract that amount from the amount of property taxes reported on the SCH A.
Do the above for mortgage interest, by simply replacing the word "tax" in all it's forms, with "mortgage interest".
For rental expenses, you only claim those expenses incurred for the 1-bedroom in the month of December.
For rental income, you only report the amount of rental income received in December.
Finally, keep the paperwork with all your math. *YOU WILL NEED IT* in the future when any one of three things happens in your lfe.
1) You sell the property
2) You convert the 3-bedroom back to a rental
3) You die. (Your heirs will need this information for proper tax reporting on your final tax return and/or estate tax return.)
