How do I report property tax for my renting home a...
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How do I report property tax for my renting home and my primary home - purchased the new home and renting out the previous home

Hello! I know this can be simple.

 

My husband and I purchased the new home because of the job move,  and renting out the old home.  So, per say, we bought the new home in Jun, moved to the new place in Aug, and renting out the old home in Oct. (in the same state - CA) We started hiring property management company and put the ad out starting from Jul. 

 

In this case, what period will be my primary residence from old place, and what period will be at the new place? 

 

Tax gets little complicated because now I have to report the rental income and expense, and I want to know how I have to report for my property tax for this situation. 

I know what I should consider for  the rental income and rental expense (there is a lot of articles about it), but, I was confused about how to report the property tax that I paid for both house. What is considered for rental period, and what is considered for my living period in both house. 

Can anyone help me on this questions?

I was searching for this in the internet, but I cannot find the answer exactly what I am asking for.. 

Turbo tax (home and business) does not guide me on this either.

Thank you in advance. 

2 Replies
Expert Alumni

How do I report property tax for my renting home and my primary home - purchased the new home and renting out the previous home

You period of personal use for the old home ended when you put the old home on the market to rent.  At that point in time, you converted the old home from personal use to a rental activity.  Property taxes for the period the old home was used as personal are itemized deductions in the section Deductions & Credits>>Your Home>>Property Taxes.  Property taxes for the period the old home was a rental property are deducted as rental expenses in the section Income>>Rental Properties and Royalties (Schedule E).

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Level 15

How do I report property tax for my renting home and my primary home - purchased the new home and renting out the previous home

You period of personal use for the old home ended when you put the old home on the market to rent. 

Not necessarily. The query is being answered from the wrong context.

If you started advertising the property for rent back in June, but it was not "available for rent" until Oct, the property remains personal use until the first day a renter "could" have moved in. The reference to "primary" home can be construed as misleading too. WHen you moved into your new residence, the old residence comes your 2nd home, which is still personal use property. Your dave of conversion to residential rental real estate is the first day a rental actually "could" have moved in.

Property taxes for your new primary residence are entered under the Deductions & Credits tab in the "Your Home" section. Property taxes for your previous residence are pro-rated based on the "in service" date, which is the first day a renter "could" have moved in. The prorated amount for the period of time it was personal use are also entered in the Your Home section under the Deductions and Credits tab. The pro-rated property taxes of the period of time the property was "in service" as a rental are claimed on the SCH E in the Rental Expenses section of the SCH E, and are entered in the box labeled "real estate taxes".

Overall, it is of my personal opinion that the program really doesn't provide the clarity needed for a first time landlord in your specific situation. So the below is provided by me, to provide you that additional clarity.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence or 2nd home before, then this date can not be earlier than the day AFTER you moved out.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.

Repair

Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.

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