Moved out of my fourplex . How do I enter this into turbotax?

[streampaw]

A few years back, I bought a fourplex and moved into one of the units. Every year since then, turbo tax has been automatically taking 75% of my expenses and allocating them to my rental. 

Last year, I moved out of that unit and rented it out. How do I enter this into turbo tax? 

Question 1: Should I select the following about my fourplex - "converted home to rental or rental to home" and "rented a unit in a multi-unit where you live"?

I selected both of those. But then it asks me this:

Question 2: "Was fourplex rented every single day?" And the answer to that would depend on whether they're talking about the 3 units that I didn't live in, or the unit that I did live in (because clearly that unit wasn't rented, since I was living there). So how would I answer that question? If it's talking about all 4 units, including the one I lived in, then clearly no, it wasn't rented every single day. Only 3 units were, but 1 wasn't, however, that's not an option as an answer here. 

On the next question, it had me enter how many days it was rented and wasn't. However, again, that depends on whether we're talking about the 3 units that were always rented, and my one unit that was my primary. If I enter the amount of days I rented my primary, it's going to apply that calculation to all 4 units, which is wrong! Question 3: What do I do here? Am I going about this whole thing all wrong?

Here are the numbers as an example: 

Let's say rent for the whole year from the 3 units is $30000. 

Let's say I moved out from my one unit on Sept 1. So it was only rented for 33% (4 months) of the year, and the total rent received was $5000. That one unit I lived in is 25% of the whole property for expense purposes (eg, dividing the taxes and the insurance between my primary and rentals). 

For expenses, let's assume property taxes were $4000 for the whole property. 

Technically, the calculation for the expenses should go something like this for the rental portion: 4000*0.66 (the amount of months I lived in the property) * 0.75 (because I lived in 25% of it during those months, so we only count 75% on schedule e) = $1980 up until September. 

From September, it would be 4000 * 0.33 (the 4 months I didn't live there and had it rented) = 1320. 

Add the two, 1980+1320 = $3300 total for the rental portion taxes. 

How do I get turbo tax to make the right calculations? 

Some people are suggesting I need to enter another property for my unit... but how would we do depreciation in that case? Isn't there a simple way to do all this in turbo tax instead of being confused? I mean, they didn't assume that I'd live in the fourplex forever, did they? 

[Carl]

There are numerous ways to do this. None of them "easy".  I recommend the simplest one.

Leave the existing asset alone. Absolutely nothing what-so-ever changes for the existing asset.

Enter another asset that is the 4th unit only. That 4th unit will be 100% business use with an in service date of one day after you moved out, or the date you decided to start renting it out - whichever date is last. 

You'll continue with the existing asset claiming 75 percent of the expenses against the existing asset. The remaining 25% will be claimed against the new asset.

The nice thing about doing it this way, is that you don't have to treat this as two separate rental properties. But you *do* have to pay attention to detail so you don't mess things up; especially with the depreciation and allocation of property taxes and property insurance.

Would you like me to cover "the other way" to do this? It's more work on your part - but only for the 2022 tax year when you converted the 4th unit to a rental.

[MaryK4]

You will want to enter the 1/4 part that you lived in as a new asset.  Four Question 1, you will have to enter that you converted home to rental but not rented a unit in a multi-unit property for this asset.  Question 2 becomes No, it was not rented everyday.  For this asset you will enter and keep a different depreciation schedule.

For this year you will have to calculate the expenses for the time you lived there as above, but you will have to enter the totals of your calculations- TurboTax will not be able to do this with the multi- divided expenses.  Next year, you will be able to enter total expenses without worrying about the split (and be sure to keep the records in case of audit).

[streampaw]

Thanks. How do I combine the depreciation for both of them for next year? Wouldn't I need to treat them separately forever because of the different dates they were put to use? 

[RobertB4444]

I don't think you should enter a new asset.  You should just change the percentage.

You have had it at 75% for years because you only used 3/4 of it.  In 2022 you used more than that.  In the example you provided you used it for one third of the year so let's use that.

Instead of using 75% for 2022 you will use 75 plus one third of the remaining 25%.  One third of 25% is 8.3%.  Add that to 75 and you used 83.3% of the house for 2022.  Then, when you come back for 2023, you just change it to 100.  

I hope your real number isn't a crazy percentage of the year but even if it is it's the only year you have to do the math.

If you do decide to enter a new asset then you will get to start depreciation from a new basis on one quarter of the house.  The accumulated depreciation when you sell will be the same, but you won't be able to combine the assets in the future to combine the depreciation.  So you'll be entering 75% into one asset and re-entering the 25% into the other asset going forward.  That's an unnecessary hassle.

@streampaw 

[Carl]

I don't think you should enter a new asset. You should just change the percentage.

With the TurboTax program, you can't do that. If you change the percentage from 75% to 100% on the 2022 taxes, the program will incorrectly assume it's been 100% for the entire time you've owned the property. That will incorrectly make your 2022 depreciation amount way more than it should be, since the program "sees" that you didn't take what it considers full depreciation for 100% business use in past years.

[streampaw]

So do I still need to enter that one unit as a new asset and allocate the percentages manually, including multiplying the expenses by the percent of the year it was rented? That's what I've done so far, but is this the right way to go about it? 

I also went back and figured out how much depreciation I didn't take in 2020, because the full amount was multiplied by 75%. So I just took the other 25% and entered it in the turbo tax program for the "new asset". Is this right? 

[Carl]

Basically, you need to leave the existing asset entry alone. Any changes to it will affect depreciation in a negative way.

With whatever you do, if you want to confirm the current year depreciation is correct when all is said and done, see IRS publication 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf   Use the MACRS worksheet that starts on page 37 of that document. For line 6 of the worksheet, table A-6 on page 72 applies.

[streampaw]

How do I calculate the cost basis for the "new asset" (one unit)? 

For example, if the entire fourplex cost me 500k, with land being 100k and building 400k, I basically had 300k as my cost basis for the 3 units (75%). But that was two years ago. 

What would be the cost basis for this one unit now? Would it be the 100k (25% of the 400k from 2 years ago)? 

[Carl]

I would use the remaining 25% as the cost basis, and make the new entry 100% business use.

[swisher376]

Hi Carl - I am in the exact same situation as the OP.  

Can you go over "the other way" you mentioned in the original answer?  Thanks.

[GeorgeM777]

The process to create two separate rental assets in TurboTax is a little different depending on whether you are using TurboTax CD/download versus TurboTax online.  While the processes are different, the resulting entries will be the same.

If you are using TurboTax CD/download, follow these steps to create a rental asset or if you prefer a separate rental property.

1. After opening your account, select the Business tab.
2. Select Business Income and Expenses.
3. Scroll down the screen to Rental Properties and Royalties.
4. After entering some basic information, you should see a screen where you can review your rental summary.
5. The rental summary screen is where you can select Assets/Depreciation to enter the unit as a separate asset as described in the previous post.  It is also at this screen where you can create a Property Profile for the unit and subsequently track the unit as a separate rental property, separate and apart from the other units which have been previously rented and have their own separate depreciation schedule.
6. Whichever option you choose, enter your information when prompted. 

If you are using TurboTax online, then follow these steps.

1. After signing-in, select Wages & Income, left margin.
2. Scroll down the screen to Rentals, Royalties, and Farm and select Rental Properties and Royalties (Sch E).
3. If you have been using TurboTax, then on the rental summary screen you should see your existing rental property.  It is here that you can enter your rental unit as a separate rental property if you choose.  If not, then select Edit next to your existing rental property.
4. On your rental property info screen, scroll down and select Add expense or asset.
5. Then add the information about your unit as a separate rental asset. 

@swisher376