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If I rented out one floor of my multi-family duplex and later switched floors and rented out the other floor, how do I calculate Rental Use Percentage?

 
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7 Replies
MinhT1
Expert Alumni

If I rented out one floor of my multi-family duplex and later switched floors and rented out the other floor, how do I calculate Rental Use Percentage?

One commonly used way to calculate the rental use percentage is by square footage. The percentage is Square footage rented divided by Total square footage.

 

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Carl
Level 15

If I rented out one floor of my multi-family duplex and later switched floors and rented out the other floor, how do I calculate Rental Use Percentage?

I assume this multi-family duplex has an upstairs unit and a downstairs unit. I further assume that one of the units is your primary residence, and that you swapped mid-year in 2019.

That being the case, I don't understand the problem here. If the downstairs unit was say, 60% of the structure, then the upstairs unit would obviously be 40%. Or am I missing something here?

If I rented out one floor of my multi-family duplex and later switched floors and rented out the other floor, how do I calculate Rental Use Percentage?

I did move from one unit to the other mid-year, as you speculated. I should have better phrased my question: which percentage to I use as my Rental Use Percentage then, the 60 (which I moved into mid-year) or the 40 (which I rented out the second half of the year)?

If I rented out one floor of my multi-family duplex and later switched floors and rented out the other floor, how do I calculate Rental Use Percentage?

You have 2 assets for the 2019 tax year ... since the unit sizes are different and IF you use those uneven percentages in the past then you will take one unit out of service and put the other into service.  But if you have been taking the common expenses evenly 50/50 in the past then do not change anything. 

Carl
Level 15

If I rented out one floor of my multi-family duplex and later switched floors and rented out the other floor, how do I calculate Rental Use Percentage?

I'm a bit confused because to me, it's quite obvious the program is asking you for percentage of floor space you are renting out. It's not asking you for percentage of floor space that is your primary residence.

I am also assuming you have clearly identified the structure as a multi-family unit, and have told the program that one of those units is your primary residence.

Basically, if it's a truly even 50/50 split between the two units, do nothing.There's no need.

Otherwise, on your 2019 tax return you will enter two rentals entered. The old first, then the new. I assume the old rental was rented out in 2018 or before also, and it's just a continuation of that for the first part of 2019 until you swapped.

For the old rental, at the start of it you'll have a screen with a selection for "I sold or otherwise disposed of this rental in 2019". Select that option.

Then continue working it through reporting the rental income and expenses for that specific and explicit unit only.

Next, you'll work through what will be named "Sale of Assets/Depreciation". Don't let the name of that section alarm you. You're not reporting the sale of anything.  Work through each individual asset listed, one at a time and select YES for "I stopped using this asset in 2019". On the "Special Handling Required?" screen, select YES. (If you select NO, you will be *forced* to enter sales information, and you already know that would be wrong.)

For the disposition date, enter a date that is at least one day after the last renter moved out.

Do the above for each individual asset listed, making sure you use the same date of disposition for all assets listed. Then finish working through the remaining screens for that rental. You'll end up at the beginning on a screen titled something like "rental property summary".

At this point, you have converted the old unit from business use as a rental, to personal use. You have also stopped depreciation on this unit, which is exactly what you want to do.

On that screen, click the "Add Another Rental" button and work it through to add your "new" rental. All of  oyur acquisition information (price, date of purchase, etc) will be identical to what you entered originally when you set up the first unit in TurboTax. The only differences will be the percentage of floorspace rented, and the date that 2nd unit was placed "in service". The in service date must be at least one day after the date you entered for converting the 1st unit to personal use.

Depreciation on this "new" rental will start anew from year 1, for the next 27.5 years.

Hopefully my remaining assumptions were correct, so that this will make some kind of sense to you.

 

 

If I rented out one floor of my multi-family duplex and later switched floors and rented out the other floor, how do I calculate Rental Use Percentage?

OKAY! I see what you mean now and you are correct, the unit I originally rented until mid-way 2019 was say 60% and then it became personal use, while the 40% personal use unit became the rented one shortly after.

My previous tax returns were through an accountant, and I decided to try doing on my own this year, but I'm curious if this will change my depreciation at all for the overall home. The accountant used 50% for business usage...I filed this one out the same. Technically one unit is bigger, as I stated, so would changing it now be too late or mess things up IRS-wise?

If I rented out one floor of my multi-family duplex and later switched floors and rented out the other floor, how do I calculate Rental Use Percentage?

If the CPA considered this a duplex and used 50% for the asset depreciation then leave things alone ... just continue this method ... it is not an incorrect thing to do and it will make things simpler. 

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