I rented my house partly(1/3) in the first 10 months from Jan to Oct. And convert it from personal use to 100% rental. How I can file this rental in Turbotax?

[Carl]

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.

[lishiji56]

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.

[Carl]

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.

[lishiji56]

Thanks you Carl. I still have many question listed below:

1, How much rental property I should have. Currently

1. I create a Property Profile and selected both "I rent out part of my home" and "I converted this property from personal use to a rental in 2021".
2. I selected "No, this property was not rented all year", how much days I should input into "Days rented at a fair rental price"? 300 days(for 10 months partial rental) or 340 days(partial rental plus 40days fully rental after converted)?
3. I noticed with above options there has no way I can input how much rate of my house was rented in the partial rental period. 

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. 

[Carl]

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.

[lishiji56]

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?

[Vanessa A]

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. 

[lishiji56]

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?

[Vanessa A]

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:

• Federal
• Income and Expenses
• Scroll down to Less Common Income and click Show More
• Start next to Miscellaneous Income
• Start next to Other Reportable Income

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. 

[lishiji56]

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?

[Vanessa A]

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. 

[lishiji56]

Yes. I am using the TurboTax Premier and let me try this as you said with two property profiles later today. Thanks.

[Carl]

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.

[lishiji56]

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?