Questions on converting property from rental to personal - California

[jkadry]

I rented out my property in California from January 1-September 15 in 2024, and have been using it as my primary residence ever since. I did have it vacant from September 16-November 8, where I added new carpet, made minor repairs, and cleaned up the place. My first question: Can I count the carpet change and repairs as improvements even though I didn't use it for a rental afterwards? How would I enter these improvements in Turbo Tax?

My second question is related to number of days used. There's a section in TurboTax under Rental Property and Royalties that asks if the property was rented for all of 2024, which they go on to ask days rented at fair market price and personal use during the year. I put 0 for personal use because TurboTax said: "In the year you convert your property from a rental to personal use, the days you lived in the home as your primary residence after the conversion do NOT count as personal use days." Is this correct? Please see below for how I entered.

Days rented at a fair rental price: 259 (January 1-September 15)

Personal use during the year: 0 (lived in it for primary residence from September 16-December 31)

Lastly, given the proportions above, how should I enter the insurance, real estate taxes, and mortgage interest in the expenses section of the Rental Property and Royalties part of TurboTax? Should they be the total or proportionate amounts, since property taxes and mortgage interest are entered in the Your Home section later?

For example, if i have $5,000 in property taxes and $5,000 in mortgage interest, should I put as $5,000x (259/365) = $3,547 for both property taxes and mortgage insurance in the Expenses part of the rental property section? And then put the remainder, $1,452, for both property taxes and mortgage insurance in the Your Home section?

Or should I enter $5,000 for both mortgage insurance and property taxes in the rental part and $5,000 for each in the My Home section as well? Maybe it's something else given I had vacant days at the property? Please advise. 

[DianeW777]

No, you cannot use the carpet change and repairs as improvements because you removed them from service as rental to personal use in the same year you did the work. There is  no deduction for this, however it should be added to your cost basis of the home for a future sale.

You should indicate the property was used 100% of the time for rental in 2024, however you must also select that it was converted to personal use and enter the date it was converted. Do not enter personal use and rental use days. This will allow the correct depreciation for the rental period. It also answers the question appropriately. The key is that you must adjust any other expenses that would apply to both the rental and personal use period such as mortgage interest, real estate taxes, insurance, utilities, etc.

Yes, as indicated you need to prorate the amounts that would belong to both personal use and rental use. Enter the correct amount in the rental and also, in the personal itemized deductions enter the difference that are for the personal use days. Do not duplicate amounts in either section.

In your example you can divide by days as an easy formula, which would be appropriate for taxes, property tax. However it's quite likely you paid more mortgage interest early in the year. Check your statements at the mortgage lender to see the actual amount paid until September 15th, enter that on your rental, then use only the balance on your personal itemized deductions.