Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
ktome
New Member

Is there a guide for how to calculate mortgage interest deductions? I converted my primary residence into a rental. This seems to be causing problems.

 
2 Replies
Critter
Level 15

Is there a guide for how to calculate mortgage interest deductions? I converted my primary residence into a rental. This seems to be causing problems.

This will be something you will need to compute yourself ... the program will not be helpful in this situation. 

 

The interest you paid while it was your personal residence goes on the Sch A  and the rest will go on the Sch E ... do a simple proration of the Mgt int, RE taxes and the Homeowner's insurance for the 2 schedules.

 

ALSO a couple of tips where most mistakes are made ...

1) you MUST list the assets and take depreciation ... it is NOT optional.

2) once you converted the home to a rental your PERSONAL use days are ZERO if you never used the home again personally once you converted it.  

Carl
Level 15

Is there a guide for how to calculate mortgage interest deductions? I converted my primary residence into a rental. This seems to be causing problems.

Unless they made a "MAJOR MAJOR" change to the program for 2019, there's nothing to compute. The program will take care of it for you if (and that's a big *IF*) you enter the data and do things correctly.  It is of utmost importance that you work through and use the program the way it is designed and intended to be used. Then *and only then* will the program *AUTOMATICALLY* do the split for you between SCH E and SCH A.

 

Since you deal with the rental stuff first, the program will "AUTOMATICALLY" figure the split based on your date placed in service as a rental. After you finish all the rental stuff *and* everything in the income section, you'll find when you get to the "My Home" section under the Deductions & Credits tab that the program has already entered the mortgage interest allowed on SCH A for the period of time it was "not" a rental. So when you get to the "My Home" section it is *IMPERATIVE* you read the small print. The program will tell you specifically and explicitely that it has already entered the allowed mortgage interest for your converted property, and will ask you if you have any more interest to enter. If you purchased a new home in 2019, then you will have the mortgage interest to enter for your new home - even if you closed in Dec of 2019.

 

I am going to assume this is your first time dealing with rental property with the TurboTax program. In my personal opinion, the program does not give you the clarity necessary when entering the rental stuff for that very first time. When setting this up with TTX 2019, absolute perfection is not a choice - it's an *absolute* *must*. Even the tiniest of mistakes in that first year *WILL* grow worse exponentially with each passing year. Then when you catch the mistake (if the IRS doesn't catch it first) the cost of fixing it *will* *be* *expensive*. So understand that perfection is not a choice. So if during the data entry process you have any questions, please, please, please, ask! The only stupid question, is the one you didn't ask.

 

Now below I have provided detailed information that the program does not clarify very well.  This will help you immensely in avoiding those first year mistakes.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence before, then this date is the day AFTER you moved out.
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 "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single night during said period of vacancy.
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 or 2nd home, 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 add value to the property. Expenses for this 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 must 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 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.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable 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 are not deductible.

Repair

Those expenses incurred to return the property or it's assets to the same useable 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 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.

Dynamic AdsDynamic Ads
Privacy Settings
v