How do I allocate, in Turbotax, the mortgage interest and local tax on a property that was a rental for only part of the year?

[tdn1]

I have a home that was a rental for 8 months (and converted back to primary home for the remaining 4 months) in 2023. Do I prorate (rental vs. primary home) the mortgage interest and the property tax (8 divided by 12) when reporting them in TurboTax or does Turbotax prorate it for me?

1. Turbotax only ask whether the property was rented for the whole year, but does not ask the ask the duration when it was up for rental or served as primary home. So it looks like I should prorate before reporting interest and local tax into the Rental and Deduction sections of Turbotax.

2. On the other hand, in the Rental section, Turbotax directs to "enter your mortgage interest from Form 1098, line 1" ... and ... "Turbotax will allocate your personal portion of qualified interest over the deduction section for you". It also reminds not to enter mortgage interest in the deduction section, since this will be transferred from the Rental section. Same directions seem to apply for property taxes. I cannot find anywhere when filing in Turbotax where I am asked how long the property was up for rental vs. used as primary home.

3. Turbotax does ask a) how many days the home was actually rented and b) how many days the home was used for personal use when listed for rental- not the days it was used as primary home/ not listed for rental).

Does it mean that only factors in the allocation are a) the days the home was actually rented and b) the days for personal use while listed for rental, vs. the 365 days of the year? And the remaining balance of the interests and taxes will the automatically transferred to the corresponding sections in the deduction section?

[AmyC]

I am going to start with your #3. The days used as a rental and personal use during that time. This is where you enter the 8 months of rental use as day and zero for personal. In that same area, you should have marked that you used the house part rental and part personal. This leads to your #2. The program now knows how much was rental vs personal use and will allocate the mortgage interest and property tax between sch E and sch A.

#1 should be answered now.

The screens will be in this order as you go through. First, mark that you converted the property to personal use. Then mark the number of days used as a rental. The program can now determine what to do with your expenses.

As a side note, be sure to keep up with the depreciation taken and any unallowed passive losses before becoming your main home as these come into play when you sell the house. You need to keep all rental tax records until 3 years after SELLING the house.

[tdn1]

I am afraid I am still confused.

A. As an example, supposing we had a home for rent for rental for 8 months (4 months rented, 3 months vacant, and 1 month aggregate/intermittent owner-occupied), and then converted it back to my home for the remaining 4 months . We paid $12,000 for mortgage interest and $12,000 for local tax.

A. The sources of the confusion, for me, would be:

1) the distinction, when the home is up for rental part of the year, between personal use during the time the home is up for rental (1 month), and use by the owner when the home is no longer rented (4 months). Turbotax direction is that personal use applies only to the rental period (1 month), not following conversion: "the number of days during the year you lived in this rental property after converting it from a rental do not count as personal use days and should not be entered as personal use during the year ..." (i.e. not 4 months).

2) whether to divide the reported mortgage interest and local tax between the rental period in the rental income section (schedule E) vs. itemized deduction (schedule A). Turbotax direction is to "enter the interest as it appears on line 1, Form 1098... Check the qualified interest is primary home/ vacation home ... and Turbotax will allocate personal portion of qualified interest over to the deduction section." In Schedule E, should it be $12,000 - as reported in the form 1098? If Turbotax did not ask how long the home was up for rental, how does it know to allocate between rental and non-rental? Or should I fill out $8,000 (corresponding to the 8 months of the rental). Similarly, how does one report local/ county taxes between rental and home periods in the Federal and State report; i.e. $12,000 and Turbotax will allocate it correctly, or $8000 for schedule E and $4000 for schedule A?

[MarilynG1]

In the Property Profile, you are asked how many days of the year the property was rented.  Once you put it up for rent, it's considered 'rented' even if its vacant.  So, until  you 'convert' back to personal property, it's a rental.  You enter the 'Date Available for Rent' and the 'Date Converted to Personal Use'. 

In your case, it sounds like it was a rental for 8 months, then converted back to personal use for the other 4 months.  TurboTax will calculate the mortgage interest and property taxes correctly.

[tdn1]

I am using Turbotax Premier 2023 and have been updating it online when prompted, as recent as today.

However, I did not come upon the questions/clarification you mentioned in your post, which would have addressed my question.

In the Rental segment, after I checked the box "I converted this property from rental to personal use in 2023", there was NO follow up question like the one you described; when I clicked continue, the next page was about whether the property was rented for all 2023. There was two questions asked: 1) rented for all of 2023, I clicked "No" and 2) During the period in 2023 this property was a rental, tell us how many days the property was rented at a fair rental price and used for personal reasons ...." with a clarification note: "the number of days during the year you lived in this rental property after converting it from a rental do NOT count as personal use days and should not be entered as personal use during the year". When I answered the questions and pressed continue, the next page was about property ownership. I do not see anytime questions about "date available for rent" and "date converted to personal use".  I am missing something, or is there a bug in my software?

[tdn1]

I forgot to specify that I am using the Mac version of Turbotax Premier, in case there is a difference between Mac and Windows versions.

[AmyC]

Follow these steps:

1. You need to go into the property profile. 
2. Select  that you converted the property to personal use. 
3. Select No the property was not rented all year. 
4. Enter the number of days the house was considered a rental property. 
5. Under personal days of use, leave it blank since there were none during the rental period. 
6. Continue through the property profile section until you reach the Rental Summary page
7. Select Assets/Depreciation
8. Mark all assets as converted. You may have appliances or capital expenses. 

This should clear things up with you and the program. When you go through the mortgage section, the program will ask if you want it to divide up the expenses and carry the remainder to your sch A. You can let the program do it or you can/ Both methods are acceptable.

The date available for rent is asked if you are entering the property for the first time.

[tdn1]

Thank you.

Actually, it looks like that, as far as mortgage interest and local taxes are concerned, I am/we/TurboTax are making this allocation: days rented vs personal days vs rental conversion much more complicated than should be.

At the end of the Section on Expenses for Rental Properties, we are given the option of allocating the mortgage interest and local taxes using either the Tax Court Method vs. the IRS Method, with the explanation that "... Under the Tax Court formula, interest and taxes are allocated on a daily basis, that is, the rental portion is the ratio of days rented to the number of days in the year. Under the IRS formula, interest and taxes are allocated in the ratio of days rented to days used., The Tax Court ratio results in a smaller amount of interest and taxes allocated to the rental property".  So for allocating taxes and mortgage interest using the Tax Court formula, only the number of days rented and the 365 days of the year are the numbers that are relevant.