On what date did you convert the house from 100% personal use to 33% rental? Then on what date did you convert that 33% rental back to personal use, to make the property 100% personal use? Then on what date did you vacate the property? Then on what date did you convert the entire property to 100% rental?
Basically, when converting the property to 100% rental, you have to reduce the cost-basis by the depreciation already taken when the property was only 33% rental.
Thanks Carl for your quick response. I rent 1/3 it from Jan to October 31. And fully converted it to 100% rental at Nov 20. So pure personal use is from Nov 1 to Nov 19. I didn’t do depreciation when partly rent. I didn’t see a method in TurboTax for input these different periods. I can choose partial and convert to rental but I have no way to prorate all of the three time ranges.
A property that is rented for less than one year, where the start/end dates do not cross tax years, does not have to be depreciated. So you should be fine for the 33% rental period. But you need to confirm beyond a doubt that no depreciation for it is showing on your 2021 tax return for the period it was 33% rental.
I assume you entered it on SCH E. If so, please take a look in the assets/depreciation section and if the property is listed there, elected to edit it and work it through. Let me know if it shows any depreciation, regardless of how small. We'll go from there.
Thanks you Carl. I still have many question listed below:
1, How much rental property I should have. Currently
2, I have some supplies for first 10 months partial rental also some repair for the fully rental after converted such as paint, front door replacement, etc. As only one property profile I created, how I can input these two types of expenses there? I simply add them up or I need to separate them as they are different type. Should I create two property profiles for these two period?
3, I don't know how it calculate the interest and property tax for Schedule A. After input with the full interest and property tax from rental, I noticed the prorated interest and property tax in Schedule A were not calculated correct as I have no way to input the prorate from the partial rental.
4, The depreciate seems only can be manually input. I didn't input any of depreciate there and it doesn't show any of depreciate from the assets/depreciation section.
I am not sure if there any mis-configuration on my TurboTax, it seems TurboTax can't can't handle it totally.
Let's just stop and back up a bit. Having had time to think this through and re-read your posts, I see now that we are both making things significantly more difficult than they need to be.
As I understand things, 2021 was the first year *EVER* that you rented out any part of your primary residence. If this is correct, then it's best to just forget about reporting the income received the first 10 months of 2021 as rental income. So, do not enter anything on your tax return in the rental section for income received that first 10 months when you rented out 33% of your primary residence. Simply report that income as "other income" and be done with it.
Then for the SCH E, report conversion of your primary residence to 100% rental on Nov 20, 2021 and go from there.
Doing it your original way of thinking will not reduce your taxable income by any significant amount that would make it worth while really, but it will significantly increase the probability of errors that will basically bite you in the butt years down the road. So that's why I suggest you treat that first 10 months as a cost sharing arrangement and just report the income as other income. If you're on board with me on this, let me know as I have information to provide that will help ensure you set up your 100% rental correctly in what will be your first year as a landlord.
When setting up a rental property in TurboTax (or any other program for that matter) absolute perfection is not an option.... its a must. Even the tiniest of mistakes can (and will) grow exponentially over time. Then when you catch the error years down the road, the cost of fixing it will be high. So lets just treat the first 10 months of 2021 as a simple cost sharing arrangement to keep things as simple as you practically can.
Hi Carl, yes you are right. 2021 was my first year for converting to rental. I understood now and you should be right, only report the rental after Nov 20 to SCH E should be simple.
One more question, what type of "other income" I can report for the first 10 months of partial rental? And I still have expense and utilities on this partial rental, can I deduct it from this income and also partial of insurance, mortgage interest and property tax?
You cannot deduct the expenses without the matching income. You would need to mark it as rental property on a schedule E and prorate the part of the house and expenses. So if you rented out just your basement for the first 10 months of the year, and your total house is 2,000 sq. ft. with the basement taking up 1,000 sq. ft. of that space, then you would allocate half the expenses to the rental and include all of the income.
Hi Vanessa , as Carl suggestion and I only report the rental after conversion at Nov 20 and report the first 10 months as a "other income" to simplify the SCH E section. So my question is, after doing as this way, what type of "other income" I can report for the first 10 months of partial rental? And I still have expense and utilities on this partial rental, can I deduct it from this income and also partial of insurance, mortgage interest and property tax?
You cannot deduct expenses without having it counted as rental income. If you just want to report the income, you would take the following steps:
This will put it on line 8z of your schedule 1 as other income. If you want to deduct expenses, you would need to count it as rental income which if it actually was rental income (you were renting out a part of your house and not just a roommate type situation) then although it's more complicated, Schedule E would be the proper way to go.
Ok. Things seems going back to complicated. So original question, if only one property profile created, how I can combine two both periods for different types of rental? Can I simply add them up ?
Or should I create two property profiles for these two period? I actually tried this method myself which confusing the SCH A on the deduction part.
Can you let me know what is the method I can use TurboTax to file this return?
Complete two property profiles. Name one something a little different like 210 High St Shared and 210 High St, then walk through the separate items and enter everything as it should be. You can also put one in all capitals.
Then you will prorate the first 10 months expenses based on percent of rental use.
For Schedule A (your personal itemized deductions) you will simply allocate the other portion of property taxes and mortgage interest not associated with the rental for those 10 months. Nothing will go on your Schedule A for the last 2 months that it was a full rental.
Method or program? You will use TurboTax Premier to enter all of this. You will just go back and add a second rental property after you complete the first one.
Yes. I am using the TurboTax Premier and let me try this as you said with two property profiles later today. Thanks.
You have to enter the 1/3 rental property first and complete it in it's entirety before you can even start the 2nd one. THis is because on the 2nd one, you have to reduce the cost basis of the structure (not the land) by the amount of depreciation taken already in the first entry. You can't get the total depreciation taken for the first 10 months, until you have completed that entry entirely.
Hi Carl,
After deleting all the property profile and I created a new one for the first 10 months. I have selected the "I rent out part of my home" and "No, this property was not rented all year" and input the 300 days for rented. But I can't find anywhere to input 1/3 of rental. And all the expense will be counted with 100% in SCH E and 20% in SCH A. Do you know why?
I can input the 1/3 when I select ""Yes, this property was rented all year" instead. Which one I should choose?
After I creating two property profile, one for first 10 months partial rent and the second for days after Nov 20 after converted, I input the full amount of expense, tax and interest to both of the property profiles as I am choosing TurboTax to do the math automatically. I noticed from the SCH A, both of the expense, tax and interest will be added there. I am not sure how I can correct it even I actually know how much for SCH A and how much for SCH E. I didn't input any Asset/Depreciation manually and it is zero.
I am choosing TurboTax to do the math automatically.
Not a good idea. Especially for your specific and explicit situation. It's just to complex for the program to deal with. The program can not, does not and will not split everything correctly between SCH E and SCH A. I highly recommend you elect to do all the splits manually, and then do so.
One example of things is will not split is property insurance. Property insurance is prorated and the prorated amount is a SCH E deduction. Property insurance is not deductible at all on SCH A, as it's not an allowed deduction for the personal use part for the first 10 months, and it's not deductible at all anywhere for the period of time the entire property was your primary residence. The prorated amount is fully deductible for the period of time it was 100% rental. But as you can see, "all" amounts for insurance are pro-rated based on percentage of business use for the first ten months, and based on the percentage of time it was a full rental for 2021. The program just flat out can not handle your specific situation automatically.
Hi Carl, I selected the "No, this property was not rented all year" for both of the partial rental for first 10 months(manually input the prorate expense) and converted for the time after Nov 20. I input the expense(insurance, tax, interest, repair) for both of the property profiles. And now the SCH E is correct. But I noticed the SCH A was automatically filled with more property tax and interest and I can't modify them. I am totally don't know how to deal with it by TurboTax. If there a pure manual way that I can input all the rental income, expense in BOTH SCH E and SCH A? Any chance I can reach to you directly to see how I can finish this tax return? I need help on it even I had tried a lot of different way but no way figured out yet.
@lishiji56 it's to bad you're using the online version of the program, instead of the desktop version. It's a whole lot easier with the desktop version. I myself use the CD/Desktop version and have never used the online version. So some of my guidance is general, since the specific steps you follow in the online version will vary from the CD version that I use.
For starters, I recommend you delete the SCH E entirely and lets start over. Basically, you enter the Rental & Royalty (SCH E) section of the program and delete both property entries.
Then, lets work on the first entry only, for the first 10 months where the property was 33% rental. Lets get that done in it's entirety start to finish, confirm the numbers are correct, and then deal with the 2nd rental entry for when you converted the property to 100% rental with 100% business use.
Now, when you indicate that you rented out part of your residence, I am already aware of at least one error that is going to occur if you elect to let the program do the splits between SCH E and SCH A for you. What you need to do is select the option to do the splits manually yourself. I'm more than happy to walk you through it, as I know you will have questions. So lets get the 10 months of 33% rental use over and done with so we don't have to deal with it anymore. That way, we can concentrate on the 100% rental use entry with the knowledge that the 33% rental use entry is 100% correct.
So are you with me on this? I figure we should be able to get this done before sun down tomorrow. (Thursday).
Ok. I should use the desktop version which I downloaded the install package online. I deleted all the rentals and started over. Below is my steps:
Done here. No way I can input 33% for rental at all. Are you using all of the above same steps?
That was quick, and probably is the reason you may have missed a few things. So here's the gist.
Click the "Add another rental or royalty" button.
- Select "rental" and fill out the rest of the "Is this rental property or royalty?" screen, then continue.
- On "What type of rental is this?" Select single family home and continue.
- On "Do any of these situations apply to this property?" you will select four items.
--- 2021 is the first year I rented this property.
--- I rent out part of my home.
--- I converted this property from personal use to a rental in 2021
--- I converted this property from a rental to personal use in 2021
Click Continue.
- On 'Converting your home to a rental" read that information. I assume you have already gathered the required information. Then continue.
- On "Was this property rented for all of 2021?" select YES, then YES again to indicate it was rented at fair market price. Then continue.
- On "Do you have an office in your home?" select NO. (A home office is not allowed for "residential" rental property.) then continue.
- On "Let us calculate your expense deductions for you." select NO, then continue.
- Select "yes, I am an active participant", then continue.
- Select "No, I did not pay for work that required a 1099" and continue.
- Select "Enter rental info myself" and continue.
- On "Is your property in any of the designated areas?" select none of the above, and continue.
- On "was this property your residence in the past?" select YES and continue.
- On "How did you acquire this property?" select I bought this rental. (I assume you did) and continue.
- Now gather your property value information, then continue.
- On "Enter purchase price" enter the contracted sales price you paid for, as indicated on line 101 of the HUD-1 closing statement (if you have it) which you received at the closing when you "originally" purchased this property.
The "Available Date" is the first date a renter "could" have moved in. TYpically, when renting a room on your house, this date is the date the renter actually moved in. But it can be earlier "provided" you did not use that space or room for "any" personal use starting on the date you enter. For you I assume that date is Jan 1, 2021.
The purchase date is the date you closed on the original purchase of the house. Most likely, that will be a prior year, and that's fine.
Once all data above is entered, click continue.
On "Enter fair market value" I fully expect the FMV of your property to be higher today, than what you paid for it when you originally purchased it. Note that FMV is "NOT" the tax value shown on your property tax bill. Typically, the "Tax Value" is 30% or more below the Fair Market Value (FMV). So you can't use the tax value here.
The program will use the "LOWER" of what you paid for the property when you originally purchased it, or the FMV on the date placed in service (which is 1/1/2021) to figure depreciation on. I fully expect what you paid for the property when originally purchased to be the "LOWER" value.
Click continue.
- On the "Enter escrow fees" screen, enter nothing. Leave all boxes blank. You will not deal with this for this specific rental entry since it's not 100% rental. We'll deal with it later. Makes life easier on the tax front, since all this occurs in the same tax year. Just click continue.
- On "Any seller paid points", leave this blank also. Points are basically pre-paid interest, and if you have any seller paid points, we'll deal with it on the 100% rental and not this one. Click continue.
- On "Any property improvement made?" if, at any time since your original purchase of the house, you paid for any property improvements, you will enter the cost of those improvements here. Do not confuse property improvements with other things such as maintenance expenses or repair costs. Basically, a property improvement is something that adds "real" value to the property. For example, painting your house does not add "real" value from the perspective of a property appraiser. But remodeling the kitchen to bring it more "up-to-date" does add real value. So if you have any such costs to enter here, enter them and continue.
- On "any other payments" enter them if applicable. I assume you have none. Click continue when done.
- On "Any prior business use?" click NO.
- On "any postponed profits" leave it blank and continue.
- On "Any damage deductions?" if at any time after your original purchase of the property, you ever filed an insurance claim that resulted in a payout, you'll deal with that on this screen. Enter the total costs of the repairs/restoration, then the amount of insurance payout received. Because of the deductible, I would expect the insurance payout amount to be less than your actual cost of repair. Then, if in the past you claimed any casualty loss on the property prior to 2018, you'd enter that amount claimed here. Then continue.
- On "Any other adjustments?" I doubt you have any. But to make sure, click the "learn more" link for each and enter data as needed on this screen. Then continue.
- On "enter property tax values" understand that none of these numbers are reported anywhere on your tax return. The program uses these numbers for the sole purpose of determining what percentage of your original purchase price, gets allocated to the land, with the remaining percentage allocated to the structure. That's because land is not depreciated. On the structure value gets depreciated. You can use your latest tax bill that you have access to. It does not necessarily have to be your 2021 property tax bill. Once you enter the numbers, click Continue.
-On the "depreciation results" the amount shown in the value of the structure that will be depreciated over the next 27.5 years. It does not account for the rental percentage being less than 100% yet, and it does not include the value of the land since land is not a depreciated asset. Click continue.
THat completes the property profile section.
Next, in the Rental Income section enter the total amount of rental income received "only" for the first 10 months of the year when the property was 33% rental.
In the Rental Expenses section, you'll probably need to gather your utilitiy bills for the first 10 months of the year only. You can only claim 33% of the total paid during that 10 months the property was 33% rental. So work through the expenses section. You can also claim 33% of the property insurance, which you will have to figure manually, and it does not matter when you paid that property insurance either. It only matters that it was paid in 2021.
- On "report mortgage interest" enter only 33% of the mortgage interest paid in 2021 as shown on your 1098 Mortgage Interest statement.
- On the "did you refinance?" screen, I am assuming you never at any time since you originally purchased the property, did a refi on it.
Once finished with income and expenses, elect to start/update the Assets/Depreciation section. If prompted, select "yes I want to go straight to my asset summary" and continue.
- Now you see your property listed there. But we have to "work it through" to add information to account for that 33% rental. So elect the Edit the property.
- On "Describe this asset" Rental real estate property" should already be selected. So continue.
- On "Tell us a little more about your rental asset" the one for "Residential rental real estate" should already be selected. Click continue.
- On "tell us about this rental asset" you see the information already filled in. Now understand that for property rented less than one year, when the rental period starts and stops in the same tax year, you are not required to depreciate it. I am recommending that you don't depreciate it since you're not required to. That way, you don't have to "keep track" of the depreciation taken for who knows how long before you sell the property. (The program will "NOT" carry forward the depreciation on this short term rental to following years. So if you take depreciation, it's up to you personally to keep a record of it. I say why bother when you are not required to?) So what you do here is make the "COST OF LAND" exactly the same amount as what appears in the COST box. That way, no depreciation is figured and you've alleviated a future migraine when and if you sell this property in the future. So make the changes and continue.
- On "tell us more about this rental asset" select I purchased this asset, then select No, I have not always used this item 100% of the time for business. Then select "I used this item for personal purposes before I started using it in this business".
For "Date I started using it in this business" enter 1/1/2021. Now for the tricky part.
The next item is "Percentage of time I used this item for this business in 2021 (e.g. 80%)" Be aware that for "YOUR SPECIFIC AND EXPLICIT SITUATION", that is the wrong question. The question should be asking you for the percentage of floor space that is rented. If I recall correctly, thats 33%. So enter 33% in that box, then continue.
- If you are asked if you want to take the special depreciation allowance, select NO and continue.
- On the asset summary screen click continue. This returns you to the "Your property assets" screen. At this point, we now need to "inform" the program of the date it was converted back to personal use. So elect to edit the property asset again.
- Click the continue button 3 times to get to the "Tell us more about this rental asset" screen. On that screen you already have some boxes selected and dates filled in. Do not change them. But now check the box for "This item was sold, retired, stolen, destroyed, disposed of, CONVERTED TO PERSONAL USE....."
- In the box for "Date you sold/retired from use" enter 10/31/2021, then continue.
- If presented the special depreciation allowance screen, select NO and continue.
- On "Special Handling required?" select YES. (If you select NO, you will be "forced" to enter sales information. You did not sell this property. So select YES.)
Now you should be on the "Your property assets" screen. click the DONE button Then for now, click the "Done with Rental Property" button.
You are completely done with this specific entry for the 10 month period of time the property was 33% rental.
You're now ready to enter a 2nd rental property entry for this property as 100% rental with an in service date of 11/20/2021. If you have any questions about what was just completed, please ask before you start your next rental property entry. It's important for the future, that you have a full understanding of what was accomplished with the above.
@lishiji56 Aw crap! It figures! Right after I posted my earlier response, I remembered there was one thing I forgot about. Since 33% of the property was rented for only 10 months, a full 33% of the mortgage interest is not deductible on SCH E for this specific property entry. You can only deduct 33% of 10 months of interest payments on this specific property entry.
To figure that, take the total mortgage interest paid in 2021 and divide that by 12 to get the average interest paid each month in 2021.
Then take that answer and multiply it by 10 months to get the amount of interest for 10 months.
Finally, multiply that answer by .33 to get the mortgage interest deduction allowed for those first 10 months when 33% of the property was rented.
Thank you so much Carl.
I finally input all the rental income, expense to one property profile after manually calculating the correct portions which is 33.33% for partial rental and 40days for the 100% rental. And also input the deduction to SCH A manually after minus the SCH E. Thanks for you huge help here!!