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ash023
New Member

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

 
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16 Replies
Carl
Level 15

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

Assuming the house was "in service" one day or more after you moved out, Your days rented is 31, days of personal use is ZERO, and yes, it was rented the entire year.  The below information will help clarify this, and a few more things too.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence or 2nd home before, then this date is the day AFTER you moved out, or the date you decided to lease the property – whichever is later.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter was contracted to move in, and/or "could" have moved in. That would be your "in service" date or after if you were asked for that. Vacant periods between renters do not count for actual days rented. Please see IRS Publication927 page 17 at https://www.irs.gov/pub/irs-pdf/p527.pdf#en_US_2020_publink1000219175 Read the “Example” in the third column.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days *YOU* lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence, 2nd home, or any other personal use reasons after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that Improve, restore, or otherwise “better” the property. Basically, they retain or add value to the property.

Betterments:
Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. An example of a pre-existing condition or defect in this context would be something such as foundation repair (slab jacking) or some other, hidden and costly, anomaly.
Restoration:
Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition.
Adaptation:
Expenses that may be for adaptation include expenses for altering your property to a use that isn’t consistent with the intended ordinary use of your property when you began renting the property. Adding a wheelchair ramp would be an example.

 

Expenses for these types of costs are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria need to be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must retain or add "real" value to the property. In other words, when the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

There are rules that allow you to just flat-out expense and deduct some property improvements instead of capitalizing and depreciating them, if the total cost of the improvement was less than $2,500. It’s referred to as “safe harbor di-minimis” But depending on the specific situation, this may or may not be beneficial. Just be aware that not every property improvement that cost less than $2,500 qualifies for this. If this interest you, the rules can get complex. So a good place to start reading is on the IRS website at https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations. The stuff on di-minimis starts about one page down.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and its assets in the usable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent for the very first time are not deductible.

Repair

Those expenses incurred to return the property or its assets to the same usable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent for the very first time are not deductible.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a 2-bedroom house into a 3-bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

Personal use days for you would be zero (0).

 

Your rental use would start on November 1st (if the property was available for rental use on that date). 

 

If the property was not available for rental until December 1st (when a renter began occupying the property), then that date would be your placed-in-service date.

 

So, simply check "Yes" for the question as to whether the property was rented every day since it was as soon as you placed it in service and thereafter, through the end of the year.

ash023
New Member

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

Thanks for the quick response. 

So in this case, even though the property was available for rent starting Nov 1, for the question

"Was ABC rented every single day in 2022?" will be Yes? 

 

In that case, how would I split the expense like Real estate taxes, Mortgage interest, HOA, Insurance given this property was my primary residence till Oct 31st. Should I prorate these monthly expenses for 2 months?

 

For the  Real estate taxes and Mortgage interest on this property from Jan 1 to  Oct31st, should I again prorate those and enter them as part of Deductions and Credit? Also, in the Deductions and Credit section for this property, how do I respond to :

What kind of property is this loan for?
-Primary home
This is where you live most of the time—can be a house, condo, mobile home, or other property types.
-Second home
This is usually a vacation home. It can be rented out part-time as long as you live there for a certain amount of time each year.
-Other
This includes rentals you don’t live in and business properties.
 
Same question for the new house that I bought and lived in from Nov 1 to Dec 31st ... will that be my Primary home, second home or other. 

 

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?


@ash023 wrote:
So in this case, even though the property was available for rent starting Nov 1, for the question

"Was ABC rented every single day in 2022?" will be Yes? 


That is correct since the property was property was rented every single day since November 1st through the end of the 2022 tax year.

 

You will have to do the prorating manually for the 2022 tax year.

 

Presumably the house you rented was your old primary residence while the house you began living in on November 1st became your new primary residence on that date.

Carl
Level 15

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

So in this case, even though the property was available for rent starting Nov 1, for the question

"Was ABC rented every single day in 2022?" will be Yes? 

 

No. As I referenced in my previous post, please read the example in IRS Publication 527 at https://www.irs.gov/pub/irs-pdf/p527.pdf#en_US_2020_publink1000219175, 3rd column. To wit:

The cottage was used for rental a total of 85 days (92 − 7). The days it was available for rent but not rented (7 days) aren’t days of rental use.

 

In that case, how would I split the expense like Real estate taxes, Mortgage interest, HOA, Insurance given this property was my primary residence till Oct 31st. Should I prorate these monthly expenses for 2 months?

If you elected to have the program do the splits for you, the only thing you will need to manually pro-rate will be the property insurance. Again, *IF* you elect to have the program do the splits for you, it will split the property taxes and the mortgage insurance between SCH A for the period of time it was personal use, and SCH E for the period of time it was classified as a rental.

HOA dues are manually pro-rated. If billed monthly then you only claim the amount paid for the 2 months it was classified as a rental. If billed yearly, then divide the total by 6 and that is the amount you claim for the 2 months it was classified as a rental.

For the property insurance, you will have to prorate that manually no matter what you select in the program. This is because property insurance paid for the period of time it was personal use is not deductible anywhere on your tax return.

For the Real estate taxes and Mortgage interest on this property from Jan 1 to Oct31st,.....

Your property taxes and mortgage interest are claimed in the tax year you actually paid them. it *does* *not* *matter* what period of time you paid those expenses *for*.  So the fact that your property taxes may be for a fiscal year beginning on Oct 1 of 2022 and ending on Sept 31 of 2023 doesn't matter. If you paid the property taxes in tax year 2023, then you claim them for 2023.

So if you paid your 2023 property taxes on Sept 29 of 2023 and then paid your 2024 property taxes on Oct 1 of 2023, Those two amounts added together are the total property taxes you paid *IN* 2023.

You can only have one primary home at any given time. In your case, the old home was your primary home until Oct 31, 2023. The new house was your primary home starting Nov 1, 2023. Note that the dates do not (and can not) overlap, as you can not have more than one primary home for any given period of time.

The loan on your old home is for rental property. THe loan on your new home is for your primary residence. It is "IMPORTANT" to get this right. Otherwise, you may run into a "maximum amount of interest you are allowed to deduct on SCH A" problem that *will* cost you money in taxes you pay and/or don't get refunded.

 

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

@ash023 Note the screens in the screenshots below.

 

Untitled.png2.png3.png

 

 

 

Re the last screenshot, note that you do NOT enter personal use days for the days prior to when the property was placed in service as a rental.

 

The example @Carl stated in the previous post is applicable to vacation rental property. 

 

Frankly, in your scenario, it is easier to simply tell TurboTax that the property was rented all year in the Property Profile section (i.e., answer "YES") and then do the split yourself, which would likely only be mortgage interest, property taxes and insurance.

ash023
New Member

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

Thanks. I was able to get through the rental income/expense and indicated that the property was rented for the entire year. For expenses I prorated tax, mortgage interest and insurance for 2 months (Nov/Dec 2022).

 

In the Deductions & Credit section, now I am entering Mortgage Interest and Refinancing (Form 1098).

House 1) For my primary home from Jan-Oct 2022, I prorated mortgage interest for 10 months. For the question "What kind of property is this loan for?" I entered primary home

House 2) For the home I lived in Nov/Dec 2022, I entered the mortgage interest from my 1098. For the question "What kind of property is this loan for?" I entered primary home

 

Something weird is happening ... When I look at Schedule A that is generated, I see a very small amount in the mortgage interest deduction, close to what I paid for House 2. 

So I deleted the information about House 2 in turbotax. Now it is picking up the amount from House 1, but then that amount is smaller than the mortgage interest deduction that I received in 2021 when I lived in House 1 for the entire time. Ideally I should be able to get a deduction for prorated interest I paid for House 1 when I was living in it and House 2. I cannot figure out how to make that happen. 

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

You may have to adjust the outstanding mortgage principal amounts because you might be exceeding the limits. 

Carl
Level 15

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

Frankly, in your scenario, it is easier to simply tell TurboTax that the property was rented all year in the Property Profile section (i.e., answer "YES") and then do the split yourself, which would likely only be mortgage interest, property taxes and insurance.

 

That will work just fine also, as the program will figure things from the date you placed it in service, depending on your specific selections; such as selecting to let the program automatically do the splits with mortgage interest ad property taxes for you.

When you get to the Deductions & Credits section (which has absolutely nothing what-so-ever to do with the SCH E in the Rentals & Royalties section), read the small print. All of it. Depending on earlier selections you may have made, the small print "MAY" tell you that property taxes and mortgage interest for the period of time it was personal use, has already been figured automatically and entered for you, and you do not enter that information again in the Deductions and Credits section.

RickM5
Returning Member

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

1. Does the same hold for converting to a STR (short-term rental)? 2. personal use days only begin to count after conversion, correct? Does have a direct IRS publication reference for this? thank you!

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

Sections 280A and 469 cover most scenarios.

 

If you have personal use days after conversion, then you need to enter those as such and any vacancies do not count as days of rental use. 

 

If you completely convert your property to rental use (i.e., zero personal use), then all of the days are basically days of rental use. 

RickM5
Returning Member

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

And just to confirm, 'personal use' only accrues after conversion?  Is there a specific reference in IRS publication to this? thank you!

Carl
Level 15

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

IRS Publication 527 at https://www.irs.gov/pub/irs-pdf/p527.pdf page 15, 2nd column, "Property Changed to Rental Use".

 

In 2022, I lived in my house till Oct 31. Rented it out on Dec 1st. Should the Fair rented days be 31 & Personal use days be 304 for "Was ABC rented every single day"?

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