Investors & landlords

Regarding the mortgage insurance expense calculation seems this is meant to be form room a and b together not separate?

I'm sure you meant to type mortgage interest expense. That is correct. Remember, you're entering expenses "outside" of the assets/depreciation section. So the expenses section covers the expenses for the total of all assets in the assets/depreciation section. (In your case, your assets are the two rooms.)

Room a is 5.1 percent and room b is 7.1 percent.

So your total percentage of floor space that is rental property (business use) is 12.2%.

I currently am using the percentage sum to calculate the mortgage insurance expense.

Again, I assume you mean mortgage interest. But you'll use the same math for the property insurance.

Mortge Insurance Expense = Mortgage insurance whole year * (sqft percent room a + sqft percent room b) / 12 * months in service of room a and b for 2021.

I assume we're thinking the same way, except that you keep using the word "insurance" when you really mean "interest".

Room a and b has the same months in service in 2021

So it's total mortgage interest paid for the entire year, divided by 12 months. This total gives you the "per month" average interest paid. Multiply that by the number of months the rooms have been classified as a rental. Then multiply that by 12.2% to get the amount of mortgage interest to claim on SCH E. Then write down the difference, as what's left is a SCH A itemized deduction, which you'll deal with later under the Deductions and Credits tab. (Long after you've completed this rental stuff)

In the "tell us about your rental asset" page the values of cost and cost of land are slightly higher than the sales price of the house and land value shown on the tax bill is this expected?

Yes. Under no circumstances can you use the "tax values" for figuring your cost basis in the property. That's because typically the tax value assessed by the county tax appraiser is 30% or more below the FMV of the property. Confused now? Good! Means you're paying attention! Let me explain why the program asks you for tax values.

I'll use the format of my own tax bill to explain, and will use simple numbers so that it's easy to "do the math" in your head.

On my tax bill it shows the "value of the land" at $25,000 and the "Value of all structures" on that land at $75,000. So my total tax value is $100,000. But wait! I paid $200,000 for my property!  The program uses the tax bill values for the sole and only purpose of determining what percentage of my total tax value, is for the land. Simple math indicates that 25% of my tax value is applied to the land.

So in the COST box I enter the total I actually paid for the property, which is $200,000. Then for "COST OF LAND" 25% of $200,000 is $50,000. So I enter $50,000 in the COST OF LAND box. From there, the program (not you) will "do the math" in the background, without bothering you, and will depreciate $150,000 over the next 27.5 years.

Now in your case, since you're only renting out 12.2% of your property, I don't know if the amounts in the COST and COST OF LAND box will be 12.2% of the totals, or if it shows the actual figures and just figures that 12.2% in the background.

As you work through the asset and get to the asset summary screen for the room that is 7.1%, I would expect it to show the amount being depreciated as 7.1% of the allocated structure value.

I financed the property through a mortgage and previously entered some costs in the disclosure in the questionnaire ( legal fees, title insurance etc.) likely why this page has the numbers adjusted up a bit (few thousand).

That's exactly why. Generally, here's how it works with your sales expenses.

Those expenses related to acquisition of the property are added to the cost basis of the property An example of this would be the title transfer fees paid at the courthouse to replace the seller's name on the property deed, with the buyer's name.

Those expenses related to acquisition of the loan are amortized and deducted (not depreciated) over the life of the loan. An example would include points paid at the closing, and other financing fees charged by the lender. 

Typically, you will see your financing fees in the assets depreciation section also, entered an an amortized intangible asset. But to be honest, I don't know quite how that works since you only rent out "a part of" your primary residence. I would not expect 100% of those fees to be deductible, and for all I know since the property is not 100% business use, maybe only some of them are, or none of them are. But when it comes to that, I've not yet had any reason to not trust the program on that particular item.

Now I'll end this particular post with one of my most favorite quotes of all time, since it fits. 🙂

* Those who claim the situation and all aspects of it, are obviously not paying attention*