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I converted my rental/residence into personal use and TT is treating it as a separate Vacation Home

I rented my main residence for 7 months and then moved back in.  I used the step by step method to enter my info and when completing, I reviewed the summary to find that my Mortgage interest was about 160% of the 1098 value.  Turbo Tax automatically entered the personal use time of my home as 'vacation home' in the schedule E wks.  Then in section 5 of Tax & Int wks it adds my full 1098 interest to the prorated personal use interest, which shows up in Sched A line 10.  This is double counting the mortgage interest.  I also don't want to show my main house as a vacation house.  It's as though TT is taking my house into account 2 times, once as a main residence and again as a vacation/rental.  The Forms are all messed up!  How do I recover?  TT will not allow my to change values in the forms directly and I've gone back through all the step by step questions and I don't see an error in my answers, but TT is clearly not calculating things the way it should.

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8 Replies

I converted my rental/residence into personal use and TT is treating it as a separate Vacation Home


@zstine963 wrote:

I rented my main residence for 7 months and then moved back in. 


That is pretty much the definition of a vacation home for tax purposes.  So let the program treat it correctly.

 

As such, DON'T enter the mortgage interest and real estate taxes again in the personal section.  ONLY enter them in the rental section.

Carl
Level 15

I converted my rental/residence into personal use and TT is treating it as a separate Vacation Home

my Mortgage interest was about 160% of the 1098 value

That's because you entered mortgage interest twice. Once on the SCH E, and again under the Deductions & Credits tab in the "your home" section. You only enter it *one* *time* on the SCH E, and the program will take care of the split between SCH E and SCH A for you.

is treating it as a separate Vacation Home

That's absolutely correct for the year you convert from rental property to personal use. Just make sure that when asked for your days of personal use, you enter the digit ZERO. That's because the program is asking for the number of days you used it for personal use *while it was classified as a rental*. Since you did not live in it while it was classified as a rental, your personal use days is ZERO.

 

 

I converted my rental/residence into personal use and TT is treating it as a separate Vacation Home

Thanks Carl:   If I change it to zero days of personal use, TT Applies my entire Mortgage interest and property tax as expenses against the rental.  Great for me, shows a big loss on it!  But I don't think it's legal to expense the whole year of tax and interest when it was only rented for 7mo.

I converted my rental/residence into personal use and TT is treating it as a separate Vacation Home

Thanks AmeliesUncle:

Just to be clear, under deductions/credits in the "your home" section when TT asks "did you own a home" and shortly after a 'yes' answer ask Did you have a loan and get a 1098?  You mean I should say "NO" I don't have a home or loans? and I should also enter "0" for property tax because these were entered as expenses in the rental section.. right?  And that's not going to throw up a red flag to the IRS?

 

I do agree that this method seems the most correct financially, but it means 1) for tax purposes, I don't have a permanent residence and only lived in a 'vacation house' and 2) I have to say I didn't get any qualifying 1098INT, which the bank of course sent to the IRS and that's concerns me.

 

Turbo Tax is very confusing, here... saying "no" I didn't own a home or have loans is wrong, but makes TT do the right thing.... i guess???  Let me know if I'm missing something

I converted my rental/residence into personal use and TT is treating it as a separate Vacation Home

Yes, that is correct.

 

All of those questions are just TurboTax's attempt to figure out how to fill out the forms correctly.  None of those questions are on the tax return.  The tax return does not need to know what your main home is or anything like that.  The tax return just needs to know the amounts for personal mortgage interest and taxes, and the amounts for rental mortgage interest and taxes.  By only entering it in the rental section, in this situation the program will automatically allocate the amounts, and put the proper amounts in the proper sections.

I converted my rental/residence into personal use and TT is treating it as a separate Vacation Home

Thanks you so much AmeliesUncle!  I have zero'd the 'home' interest and tax.

 

Can you comment on if it is appropriate to enter 'zero' as personal use days as Carl has replied?  If I do this, my return goes way up as I end up with a loss on the rental.  Carl says that zero for personal use is appropriate because I have removed the house from renting and is therefor not personal use.  Of course the whole year's 1098INT and property tax is then expensed against the rental and allocating this much mortgage interest to the rental puts me below the itemized/standard deduction threshold... zero personal use or not, either way my 1098int won't be itemized.

I converted my rental/residence into personal use and TT is treating it as a separate Vacation Home

If you are intending to never rent it again, that is a possible method, but it is sort of a weird area.

 

It if was 100% rental then converted to 100% rental that is expected to be a rental for a year or more, Carl is correct.  But if the rental period (or personal period) is expected to be less than a year, then you enter the days.

 

So if it is not to be rented within a year, that is where it ends up in a weird area because you sort-of meet both scenarios (rental was expected to be less than 1 year which means so you should do it the way I told you, BUT now if personal is expected to be now over 1 year which means the way that Carl said is correct).  Realistically, either method can work *IF* you enter the information correctly (which can be quite confusing).

 

If you do it the way Carl said, then you need to manually calculate and enter the mortgage interest, taxes, insurance, and utilities for that 5 month period.  Then manually calculate and enter the 7 months for personal mortgage interest and taxes.  If you do it the way I said, just enter the full year amounts in the rental section and the program will divide it.

 

One note:  If you are NOT intending to rent it again, you probably should NOT enter depreciation, as that does not apply for items that are "placed in service" and "taken out of service" in the same year.  But if you intend to rent it again next year, depreciation is appropriate (actually, it is required).

I converted my rental/residence into personal use and TT is treating it as a separate Vacation Home

Thanks you for spending so much time AmeliesUncle!  I hate the ambiguity.  IMO, there should only be 1 correct way to enter your taxes, but that's just not reality...

I had entered things your way with nothing entered in my personal home for 1098INT and everything in the rental section.  What I didn't like was TT put rental expenses (cleaning, home insurance, etc.) into "vacation home loss limit" in sched E and resulted in more rental income then I really had.  So I entered "0" for personal use days and pro-rated 7mo of 1098INT, Tax, & Insurance into rental expense and 5mo into the 1098INT for my home, and then checked the box for "the value entered is different than 1098INT received".  This seems the most accurate.  Hopefully it follows IRS rules....??? I'm no tax lawyer!

I don't intend to rent this property again.

Thanks again!  Because of your help,  I'm good to go with this issue.

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