How to report primary residence turned to rental mid year?

[joetaxes]

I converted my primary residence to a rental property and bought another home. When I entered the info into TT home and business 2023, I listed both 1098 on the personal deduction side. When I go to the rental portion, it is asking me to reenter the 1098 info. Do I list the entire 1098 interest or do I adjust the interest paid, relevant to the months the property was rented? I’m confused because TT is not calculating for me.

[AnnetteB6]

Since you converted your primary residence to a rental property during the year, you will need to enter the 1098 information only for the portion of the year that the property was a rental in the Schedule E Rental Income and Expenses section of TurboTax.  The program will not prorate that information for you when you convert a personal property to a rental.  

The same thing would be true for other expenses such as property tax and insurance.  Enter the applicable amount that was paid during the time the property was a rental when working through the rental income and expense section.

Additionally, be sure that you also adjust the amounts reported as an itemized deduction to reflect only the period of time that the house was your personal residence.  You will need to adjust for mortgage interest and property tax.  Personal homeowner's insurance is not deductible for the time you lived in the home.

One more tip to insure proper deductions on the Schedule E.  As you first go through the Rental Income and Expenses section, you should indicate that 2023 is the first year you have rented the property and that you converted it from your personal residence.  Doing this, you will be asked to provide the number of days of rental use and the number of days of personal use.  Your personal use days should be zero.  This question is asking whether you used it personally at any time after it was converted.  Before it was converted does not count.  

[joetaxes]

Thanks for the reply. TT says the software automatically pro-rates the time so I wasn't sure. In the personal deduction section for mortgage interests paid, my input will be different than what is listed on the 1098 but when I add both the personal use time and rental time, it will equal the total interest paid that is on the 1098, correct? Thanks.

[DianeW777 · Accepted solution]

Yes, by adding the personal portion of the mortgage interest and the rental portion it should equal the full 100 percent of the total mortgage interest paid in 2023.

Keep in mind that once it was converted to a rental property, from that day forward it is 100% rental activity. All expenses for repairs, cleaning, etc., after it was converted, to maintain the property, are deductible after the date placed in service, as long as it was available for rent.  These should not be prorated.

This is what TurboTax understands and for this reason you need to prorate the expenses yourself this year (mortgage interest, real estate or school tax, insurance) to make all the entries on both the Schedule E and the Schedule A (itemized deductions).  

This will allow TurboTax to utilize 100 percent of the expenses that were strictly for the rental activity after it was converted from personal use. 

@joetaxes