I rent out 3 room in my primary residents and earn a rental income. Do i file schedule E only for my property and rental income or do i file schedule A and E together

[haunter923]

I rent out 3 room in my primary residents and earn a rental income. Do i file schedule E only for my property and rental income or do i file schedule A and E together?

am i allowed to file both together while submitting both mortgage interest, pmi, property taxes, on each schedule form or separately, or am i suppose to select one schedule form to file? probably schedule e? only?

[Marketstar · Accepted solution]

Mortgage interest, property taxes, and mortgage insurance are divided between personal (Schedule A, itemized deductions) and rental use (Schedule E) proportional to the number of days used for each and square footage rented

For instance, if you rent out 50% of your floor space, deduct 50% of your property tax and mortgage interest (and mortgage insurance) times (days rented /365 ) as a rental expense, and the balance as a Schedule A, itemized deduction.

If you rent 50% of your floor space all year, divide the expenses 50-50 between itemized and rental expenses.

So, you will enter a portion of mortgage interest and property taxes in both areas Schedule A, itemized deductions, and Schedule E, rental income and expenses

[haunter923]

So i split my 1098 to both schedule a and c totaling to what i have on my 1098

[Marketstar]

Yes, split the 1098 to both Schedule A, and Schedule E.

[DS-CA]

@Marketstar Somewhat related...I can't find this question, so hope you can help me too.  I am using Deluxe and expect my not using Home and Business might be causing this odd behavior.  I've tried to manually split the 2019 property tax I paid between Sched A and E and for the most part I've been successful.  Only problem (that doesn't seem to affect the outcome on 1040) is the balance of the portion that isn't claimed on Sched E (I rented 1 room (25%) for only 1 month in 2019) is showing up in Schedule E's Schedule A Smart Worksheet under D  Real estate taxes - vacation home.  It is not a vacation home.  I didn't answer anything in the interview that indicated I have a vacation home.  I only rented the one room in December 2019.  I lived in the house as my Principal Residence for the entire year.    I filled out Days rented at fair rental value - 31 and Days for personal use - 334.  Under Owner-Occupied Rentals I did not check to allocate personal use items to Schedule A since I couldn't get that to work and opted to calculate and input the numbers directly.  On line Q Percentage of rental use I put 25.00%.  It won't allow me to move the value from Vacation Home to Principal residence and so it gets carried to other worksheets but Schedule A has accurate number on line 5b.  Can I fix Schedule E's Schedule A Smart Worksheet?  If not, does it matter?

[Carl]

If you will work through the program the way it is designed and intended to be used, you will be asked for rental information first. I can not stress the importance of reading each and every screen, especially the small print, before you make selections or enter data on that screen.  Also pay attention to the wording of each screen. There is a vast difference between "select the one that applies" and "select all that apply".

For example, one of the selections you will make on one of the screens is the selection for "I rent out a part of my home". You will probably make other selections on that same screen too. When you do that, you will be given the opportunity to have the program figure some of the splits "for you".

For example, if you elect to have the program do the splits for you, the rental section will ask you to enter your 1098 *exactly* as printed and the program *not you* will split the mortgage interest between the SCH E for the period of time and amount of space that is classified as a rental, the space/time that is not classified as a rental will be on SCH A *AUTOMATICALLY* by the program.

Then depending on your specific and explicit situation, there may be other screens that will ask you for "whole house" expenses, and screens that ask you for "rental portion only" expenses.  When renting a room in your house, it is *not* common to have anything listed as a "rental portion only" expense.

In other situations, you may have to figure and enter the splits manually yourself. In that case, mortgage interest, property insurance and property taxes are split between SCH E and SCH A based on the square footage of the house that is "exclusive to the renter" and is further reduced based the days it was classified as a rental. But the split for utility costs is based on the number of people living in the house and the number of days rented. Then, when it comes to utilities the one utility cost you can't claim on the SCH E at all is the cost of a land line telephone, if you only have one phone number assigned to your residence.

Additionally, any other utilities claimed (gas, electric, water, cable, internet, etc.) must be accessible by the tenant from the space that is exlusive to that tenant. For example, if you don't have a cable TV outlet in the renter's room, then you can't claim any of your cable costs at all on the SCH E.

[DS-CA]

Thank you! I am using Deluxe.  I was very careful filling out the interview and I did go in order.  Even in the interview when I get to the last 2 pages of the Rental section it starts asking about Vacation home ("Enter the total of any other vacation home expenses we haven't asked you for." and "If you have any rental expenses that are applicable only to the rental use of your vacation home (for example, a business license fee), then enter them here." when I've not seen any questions or indicated anything about vacation home in any previous section.   Even the earlier question "What Type of Rental is this?" I answered "Other" since, though it was only rented in December it is not technically a Vacation or short-term rental since I've continued to rent it through this month (March 2020).  Should I have selected "I converted this property from personal use to a rental in 2019"? When I say I converted from personal to rental and indicate 0 personal days my refund increases but that doesn't seem like the right thing to do.  On the next screen Do Any of these Situations apply to this property?  I clicked Rented - I rented out part of my home.  Under Converted I checked neither I converted this property from personal use to a rental in 2019 nor I converted this property from a rental to personal use in 2019 since it has been personal use for all of the year and I rented only one room while I continued to live there.  Should I have answered "yes" to I converted this property from personal use to a rental in 2019?  It makes it sound like I no longer live there, but I do.  Related but topic shift...Am I forced to write off my mortgage interest for the one month I rented 1 room?  I don't intend to write off any interest.   I'm only planning to claim some property tax for the rental since I am limited by how much property tax I can claim on Sch A due to the $10K limitation.  It is very confusing that I rent for 31 days and use for personal year for 334 when I've lived in the house for 356, but it won't allow me to do that.  Thank you for the info about the other expenses - that makes sense.  I still don't have an answer to my question about how to change the entry erroneously on the vacation home line in the "Schedule E Schedule A Smart Worksheet".

[ThomasM125]

If you indicate that you had -0- personal days, then you can deduct a loss on the rental activity, so that is why your refund increases when you do that. You should enter your personal days if you had any.

You would say you converted it from personal use to rental if you used to use it for personal purposes. 

You would be required to deduct the mortgage interest for the one month you rented the property, as that may affect your itemized deduction/standard deduction choice.

I'm not sure why you are getting the vacation home treatment, but it shouldn't adversely affect anything as it won't be reported as such on your tax return and you can deduct property taxes and mortgage interest on up to one vacation home.

[DS-CA]

Thanks, @ThomasM125 !

I'm confused.  I lived in the house alone from Jan-Nov and then rented the room for Dec while I continued to live there - I am converting it from personal use to rental, right?  And my personal days are 334 and rental days are 31.

But I can't seem to reconcile those statements above with the On Demand Tax Guidance from TT:

Explain Personal Use

This means any day, whole or in part, your property was used by:

- You for personal purposes [I'm using this to declare my personal days as 334]
...

Not treated as personal use days:

...
- Days you used it as your main home before (or after) renting it, if the unit was rented 12 months or more or will be  [but this seems to contradict that I can count 334 days since I will rent for 12 months, so should personal days be 0?]
...

In the year you convert your property from personal use to a rental, the days you lived in the home as your primary residence prior to conversion do NOT count as personal use days.

...

Which should it be 0 or 334?

Once I figure the personal day question I can then look at mortgage interest but it sound like you say I MUST deduct it.

Great to know I'll not worry about the vacation home misplaced value.  The bottom line comes out the same.  At least that question is solved.  Thanks for your help with the last 2 issues.  

[ThomasM125]

Yes, you are correct, you are instructed not to count the personal days before you rented it as such, so the personal use days would be -0- in your case!

[DS-CA]

@ThomasM125   From IRS 2019 Instructions for Sch E (Line 2) https://www.irs.gov/pub/irs-pdf/i1040se.pdf   this sounds more consistent with what I would think makes sense.  AND it's not consistent with what TT told me.  Reading this I think personal days is 334, not zero (and the section below copied from IRS, bold and italicized, is DIFFERENT in the TT On Demand Tax Guidance for Personal Use description I copied and put in the post above).  I hadn't tried to rent it prior to when when it got rented (no ads placed).

A day of personal use is any day, or
part of a day, that the unit was used by:
• You for personal purposes,
• Any other person for personal purposes, if that person owns part of the
unit (unless rented to that person under a
“shared equity” financing agreement),
• Anyone in your family (or in the
family of someone else who owns part
of the unit), unless the unit is rented at a
TIP
fair rental price to that person as his or
her main home,
• Anyone who pays less than a fair
rental price for the unit, or
• Anyone under an agreement that
lets you use some other unit.
Do not count as personal use:
• Any day you spent working substantially full time repairing and maintaining the unit, even if family members
used it for recreational purposes on that
day, or
• Any days you used the unit as your
main home before or after renting it or
offering it for rent, if you rented or tried
to rent it for at least 12 consecutive
months (or for a period of less than 12
consecutive months at the end of which
you sold or exchanged it).

[ThomasM125]

I agree that there is an issue with interpretation here. I do not have the authority to act as an arbiter. I do know that if you follow the instructions in TurboTax and your tax is later adjusted by the IRS, TurboTax will refund any interest or penalties you incur as a result.

At the same time, TurboTax is only aiding in the preparation of your tax return, so you are certainly able and encouraged to make your own interpretation of tax law.

[DS-CA]

@ThomasM125 thank you. I'll follow the IRS instructions and manually completed Sch E and A worksheets. Using personal days as 334 it calculated .0849 of 25% of my annual property tax as deductible expense from my one month of rent. 

[ThomasM125]

That sounds reasonable!

[pandreae]

Yes I agree the mortgage interest and property tax must be allocated across all uses of the property

On each of the Business Schedule C, E and K and on the Personal Deductions I must be able to allocate the asset as reported on a 1098.  I should always only have one 1098 for each property with a mortgage and taxes.