Amortization of Mortgage Points

[wleighton]

Hi, 

We purchased a 4-plex at the end of 2023 and one of the units was used as our primary residence through 5/31/24. I'll be claiming the Standard Deduction this year, so nothing can be done with the points while the unit was our primary residence, but am I able to begin amortizing on Schedule E this 1/4 of the points paid beginning when the unit was placed in service as a rental (6/1/24)? Or would it have had to be placed in service as a rental unit right away upon purchase of the property in order to amortize the mortgage points?

[KrisD15]

Yes, you may claim the points on the rental going forward for the portion that was personal residence. 

To do that, enter the remaining points as a separate asset in the rental section.

Select "Intangibles, Other property" on the "Describe This Asset" screen, and the date of purchase as the date you converted the unit to rental.

Select "Loan Fees" from the drop-down on the "Select a code" screen 

Enter the remaining years of the loan on the "Recovery Period" screen 

[wleighton]

Thank you! Another question coming up regarding the same situation: If I choose 213 days of personal use (6/1/24-12/31/24) and 152 days rented at fair market value (1/1/24-5/31/24), will the system calculate the depreciation based on 152/365 days this unit was a rental? Should I enter all expenses for the entire year and the system will calculate the deductible amount? I was planning to manually calculate insurance, taxes, mortgage interest based on 152/365 (the portion that the unit was a rental) of the total for the year and only include receipts for expenses from 1/1-5/31. But it seems I should include receipts for the whole year, since the system will only allow me to deduct a portion of them based on the portion the unit was a rental. 

[PatriciaV]

Depreciation is based on the business use percentage. If you indicate that you used the property 100% of the time as a rental, you will receive a full year of depreciation expense. If you indicate that you used it at least part of the time for personal purposes (not listed as a rental all year), TurboTax will calculate an allocated amount of depreciation.

If you moved into your rental and made it your personal residence during the tax year, you need to divide up your expenses. Identify the expenses you incurred while it was a rental versus the expenses you incurred while it was your home. Report only the expenses incurred while it was a rental for the rental property.

If this property was listed for rent all year (including the time you used it for personal purposes), enter the total amount of your expenses. TurboTax will allocate the rental portion for you.

@wleighton 

[wleighton]

I think I was getting hung up on the days of personal use vs rental use. I've entered 151 for the days rented (1/1/24-5/31/24) and 0 for days of personal use (because there were no days of personal use during the time it was a rental).  I've disposed of the property (converted to personal use) 6/1/24, so the system calculates the depreciation based only on the time it was a rental. I've divided up the expenses and only included the amount incurred while the property was a rental. I'll have to put the property back in service with an adjusted cost basis 1/1/25. Does that all sound about right?

[AmyC]

Yes, zero days of personal use while a rental, converted the property, divided expenses, it all sounds good. For 2025, you will convert it back to rental property and pick up your assets again to continue depreciation. You would only adjust the cost basis if there had been  a change to the basis. 

• The basis being depreciated is the lower of fair market value (FMV) or cost basis plus improvements.
• You can double check your basis entry is correct with Publication 551 Basis of Assets - IRS.