2645859
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
Announcements
Attend our Ask the Experts event about Tax Law Changes - One Big Beautiful Bill on Aug 6! >> RSVP NOW!
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

jmoren11
New Member

How to properly report rental expenses for a home that was converted from personal use to a rental during the year.

In 2021 I converted my home from personal use to a rental. This home was rented for 9 months in 2021 (April - December). Under Rental Expenses> Insurance premiums, should I enter the insurance premium cost for the 9 months the home was rented, or should I enter the cost for the entire year? The same question applies to Real Estate Taxes. I'm uncertain because in the same Rental Expenses section, under ‘Report Mortgage Interests’, it clearly asks you to enter the rental portion of the mortgage interest.

 

 

x
Do you have an Intuit account?

Do you have an Intuit account?

You'll need to sign in or create an account to connect with an expert.

4 Replies
ColeenD3
Expert Alumni

How to properly report rental expenses for a home that was converted from personal use to a rental during the year.

Enter any expenses on Schedule E solely for the 9 months it was rented. You can also include the personal portion of mortgage interest and property taxes on Schedule A.

Carl
Level 15

How to properly report rental expenses for a home that was converted from personal use to a rental during the year.

I suggest you elect to do the splits between SCH E for the period of time it was a rental, and SCH A for the period of time it was personal use, manually. If you elect the option to have the program do the splits for you, it can not, will not, and does not do "all" the splits. For example, one thing it doesn't split is the property insurance. That's because your property insurance is just flat out not deductible on the SCH A for the period of time it was personal use property.

You may find the below helpful also, as it provides the clarity that the program does not.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence or 2nd home before, then this date is the day AFTER you moved out, or the date you decided to lease the property – whichever is later.
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 was contracted to move in, and/or "could" have moved in. That would be your "in service" date or after if you were asked for that. Vacant periods between renters do not count for actual days rented. Please see IRS Publication927 page 17 at https://www.irs.gov/pub/irs-pdf/p527.pdf#en_US_2020_publink1000219175 Read the “Example” in the third column.
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, 2nd home, or any other personal use reasons 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 Improve, restore, or otherwise “better” the property. Basically, they retain or add value to the property.

Betterments:
Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. An example of a pre-existing condition or defect in this context would be something such as foundation repair (slab jacking) or some other, hidden and costly, anomaly.
Restoration:
Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition.
Adaptation:
Expenses that may be for adaptation include expenses for altering your property to a use that isn’t consistent with the intended ordinary use of your property when you began renting the property. Adding a wheelchair ramp would be an example.

 

Expenses for these types of costs 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 need to 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 retain or 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.

There are rules that allow you to just flat-out expense and deduct some property improvements instead of capitalizing and depreciating them, if the total cost of the improvement was less than $2,500. It’s referred to as “safe harbor di-minimis” But depending on the specific situation, this may or may not be beneficial. Just be aware that not every property improvement that cost less than $2,500 qualifies for this. If this interest you, the rules can get complex. So a good place to start reading is on the IRS website at https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations. The stuff on di-minimis starts about one page down.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and its assets in the usable 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 for the very first time are not deductible.

Repair

Those expenses incurred to return the property or its assets to the same usable 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 for the very first time 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.

How to properly report rental expenses for a home that was converted from personal use to a rental during the year.

Carl,

I assumed the online turbotax tool would calculate this for me if I entered the full annual tax and insurance amount.  Does this mean that for the tax and insurance expense, that I should calculate the prorated amount for the schedule E based on the time it was rented?  And is this ratio based on the "in service" date or the "date it was rented"  For example, if it was in-service for 100 of the 365 days per year (or 27.4% of the year), and my insurance expense was $1000, then I would report $274 on the schedule E insurance in TurboTax?

 

Thank you,

Jason

MarilynG1
Expert Alumni

How to properly report rental expenses for a home that was converted from personal use to a rental during the year.

If you elect to have TurboTax do the splits, it will split Mortgage Interest and Property tax for you correctly between rental and Schedule A, if you enter them in the Rental section first.  For other expenses, whatever amount you enter will get split.  So you could enter whole-house insurance, utilities, etc. and they will be split. But for expenses that are just for the rental, whatever amount you enter will also be split.

 

The 'in service' date is the only date you need to worry about.  If you state an 'in-service' date of 04/04/2024, for example, expenses are pro-rated for the year.  It doesn't matter whether the house was not rented for periods, only that it was 'available for rent' during the period, so no worry about counting days actually rented.   Be sure to say 'yes, it was rented all year' (which means from the 'in-service date).

 

@jasonsriche 

 

 

 

 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

Unlock tailored help options in your account.

message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question