Partial year rental of primary residence

[cohenjess]

Hello,

I rented out my primary residence (which is the only property I own) during the summer of 2024 (for 66 days). I lived in the house for the rest of the year, and have lived in it since buying it in 2019. I received a 1099-K from the online payment service that I used to collect the rent. I have spent hours trying to get TT to report the rental income and expenses correctly (including property depreciation), but it does not work. My questions/issues are:

1. The amount reported on my 1099-K includes the processing fees paid by my tenant, and also the security deposit he paid me, which I returned to him after the rental. How and where do I deduct these sums?

2. When I enter the expenses on Schedule E according to the TT questions, it does correctly prorate my expenses, including property taxes and mortgage interest, for the rental period. However, it ALSO retains the full amounts of the property tax and mortgage interest which I entered for my house on my Schedule A . In other words, TT is not dividing my expenses between rental (Schedule E) and personal (Schedule A), even though they are for the same property.  I should be taking the standard deduction, but this miscalculation pushes me into an itemized deduction, and I cannot find any way to correct it (I've tried multiple permutations).

3. I believe my rental counts as "not-for-profit" based on the guidelines in IRS pub 527 (basically, it's rented below market value; I rent it out while I am overseas so that the house is taken care of and I can cover my expenses -- this is not a money-making venture). Pub 527 says:   "Report your not-for-profit rental income on Schedule 1 (Form 1040), line 8j. If you itemize your deductions, include your mortgage interest (if you use the property as your main home or second home), real estate taxes, and casualty losses from your not-for-profit rental activity when figuring the amount you can deduct on Schedule A."  I'm having trouble understanding these instructions, and also not sure if/how I can follow them, given that I did receive a 1099-K for the rental income, which presumably I have to report.

Any help or instructions much appreciated!  Thank you.

[DianeW777]

Let's get this figured out one question at a time.

1. Report the income and then you can use miscellaneous or other expenses to report 'security deposit repayment' and 'processing fees'.
2. If you, by chance, entered the mortgage interest and real estate taxes in both places, TurboTax will not recognize that. To make sure the numbers come out correctly, enter the correct amount (personal use portion only) in your itemized deductions. If the rental expense portion is correct do not make changes there.
3. If you are not making a profit during the rental period because you are not charging fair rental value (FRV) then you should report it as you indicate. The instructions for a 'not-for-profit' rental are shown below for you. You only report income that is over and above your expenses in this scenario. In this scenario the mortgage interest and taxes would be fully used on your itemized deductions and not on the rental. 
4. You can delete your rental activity (Schedule E) using the link below for your TurboTax software. Do not do that if you believe  you are charging a FRV during the rental period.

You'll need to delete this form --------------------. 

• If you're using TurboTax Online software and need to delete a form, click here.
• If you're using TurboTax Desktop software and need to delete a form, click here.

Where to report. 

Report your not-for-profit rental income on Schedule 1 (Form 1040), line 8. If you itemize your deductions, include your mortgage interest and mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses from your not-for-profit rental activity when figuring the amount you can deduct on Schedule A.

Other Miscellaneous Income:

1. Sign into your TurboTax Online account
2. Go to Tax Home (left panel)  Wages and Income  section
3. Scroll to  Less Common Income > Select  Miscellaneous Income, 1099-A, 1099-C
4. Select Other reportable Income > Enter a description (----) and the amount

[cohenjess]

Thank you so much, this is very helpful!  I just want to clarify:

2. Yes, I did enter my entire mortgage interest & real estate taxes on Schedule A. My understanding was that the amounts I enter there must correspond with the 1098 from my mortgage company. But it sounds like you're saying that's not necessary, and that I can split the amount into two different entries (Schedule A / Schedule E), as long as they add up to the 1098 figures -- is that right? In other words, should I enter *only* the personal use portion of those expenses on my itemized deductions, and the rental portion on the Schedule E?

3. You mention that if I define the rental income as not-for-profit: "You only report income that is over and above your expenses in this scenario." So here, my expenses would only be things like professional fees, repairs, supplies, etc., and NOT the mortgage & real estate taxes -- is that right? But again, if I deduct expenses and put the remaining amount on Schedule 1, then it won't match the amount on the 1099-K that I received.

Thanks again, I appreciate your help!

[RobertB4444]

What @DianeW777 is telling you in her answer is that you should start by deleting the schedule E you created.  You can't use schedule E for a not-for-profit rental.  And since you are not using schedule E you will enter all of your mortgage interest and property taxes on schedule A.

Then follow her instructions to enter your profit from the rental (don't deduct mortgage interest or property taxes).  If that is zero then you don't have to enter anything.  BUT IT CAN"T BE A NEGATIVE NUMBER.  

So we assume that you're at zero for the year (for the sake of argument).  Your 1099K shows $5000 and you have $5000 in expenses so the correct amount to enter is zero.  But you want to make sure that the IRS sees the number from the 1099K.

Make two entries in the Miscellaneous income section that Diane sent you to.  Make one entry for the full amount on the 1099K and call that "Not-For-Profit Rental Income".  Then make a second entry labeled "Expenses for Not-For-Profit Rental Income".  The net is what will show up on the tax return but the numbers will be reported to the IRS so you'll be all good.

@cohenjess