That was quick, and probably is the reason you may have missed a few things. So here's the gist.
Click the "Add another rental or royalty" button.
- Select "rental" and fill out the rest of the "Is this rental property or royalty?" screen, then continue.
- On "What type of rental is this?" Select single family home and continue.
- On "Do any of these situations apply to this property?" you will select four items.
--- 2021 is the first year I rented this property.
--- I rent out part of my home.
--- I converted this property from personal use to a rental in 2021
--- I converted this property from a rental to personal use in 2021
Click Continue.
- On 'Converting your home to a rental" read that information. I assume you have already gathered the required information. Then continue.
- On "Was this property rented for all of 2021?" select YES, then YES again to indicate it was rented at fair market price. Then continue.
- On "Do you have an office in your home?" select NO. (A home office is not allowed for "residential" rental property.) then continue.
- On "Let us calculate your expense deductions for you." select NO, then continue.
- Select "yes, I am an active participant", then continue.
- Select "No, I did not pay for work that required a 1099" and continue.
- Select "Enter rental info myself" and continue.
- On "Is your property in any of the designated areas?" select none of the above, and continue.
- On "was this property your residence in the past?" select YES and continue.
- On "How did you acquire this property?" select I bought this rental. (I assume you did) and continue.
- Now gather your property value information, then continue.
- On "Enter purchase price" enter the contracted sales price you paid for, as indicated on line 101 of the HUD-1 closing statement (if you have it) which you received at the closing when you "originally" purchased this property.
The "Available Date" is the first date a renter "could" have moved in. TYpically, when renting a room on your house, this date is the date the renter actually moved in. But it can be earlier "provided" you did not use that space or room for "any" personal use starting on the date you enter. For you I assume that date is Jan 1, 2021.
The purchase date is the date you closed on the original purchase of the house. Most likely, that will be a prior year, and that's fine.
Once all data above is entered, click continue.
On "Enter fair market value" I fully expect the FMV of your property to be higher today, than what you paid for it when you originally purchased it. Note that FMV is "NOT" the tax value shown on your property tax bill. Typically, the "Tax Value" is 30% or more below the Fair Market Value (FMV). So you can't use the tax value here.
The program will use the "LOWER" of what you paid for the property when you originally purchased it, or the FMV on the date placed in service (which is 1/1/2021) to figure depreciation on. I fully expect what you paid for the property when originally purchased to be the "LOWER" value.
Click continue.
- On the "Enter escrow fees" screen, enter nothing. Leave all boxes blank. You will not deal with this for this specific rental entry since it's not 100% rental. We'll deal with it later. Makes life easier on the tax front, since all this occurs in the same tax year. Just click continue.
- On "Any seller paid points", leave this blank also. Points are basically pre-paid interest, and if you have any seller paid points, we'll deal with it on the 100% rental and not this one. Click continue.
- On "Any property improvement made?" if, at any time since your original purchase of the house, you paid for any property improvements, you will enter the cost of those improvements here. Do not confuse property improvements with other things such as maintenance expenses or repair costs. Basically, a property improvement is something that adds "real" value to the property. For example, painting your house does not add "real" value from the perspective of a property appraiser. But remodeling the kitchen to bring it more "up-to-date" does add real value. So if you have any such costs to enter here, enter them and continue.
- On "any other payments" enter them if applicable. I assume you have none. Click continue when done.
- On "Any prior business use?" click NO.
- On "any postponed profits" leave it blank and continue.
- On "Any damage deductions?" if at any time after your original purchase of the property, you ever filed an insurance claim that resulted in a payout, you'll deal with that on this screen. Enter the total costs of the repairs/restoration, then the amount of insurance payout received. Because of the deductible, I would expect the insurance payout amount to be less than your actual cost of repair. Then, if in the past you claimed any casualty loss on the property prior to 2018, you'd enter that amount claimed here. Then continue.
- On "Any other adjustments?" I doubt you have any. But to make sure, click the "learn more" link for each and enter data as needed on this screen. Then continue.
- On "enter property tax values" understand that none of these numbers are reported anywhere on your tax return. The program uses these numbers for the sole purpose of determining what percentage of your original purchase price, gets allocated to the land, with the remaining percentage allocated to the structure. That's because land is not depreciated. On the structure value gets depreciated. You can use your latest tax bill that you have access to. It does not necessarily have to be your 2021 property tax bill. Once you enter the numbers, click Continue.
-On the "depreciation results" the amount shown in the value of the structure that will be depreciated over the next 27.5 years. It does not account for the rental percentage being less than 100% yet, and it does not include the value of the land since land is not a depreciated asset. Click continue.
THat completes the property profile section.
Next, in the Rental Income section enter the total amount of rental income received "only" for the first 10 months of the year when the property was 33% rental.
In the Rental Expenses section, you'll probably need to gather your utilitiy bills for the first 10 months of the year only. You can only claim 33% of the total paid during that 10 months the property was 33% rental. So work through the expenses section. You can also claim 33% of the property insurance, which you will have to figure manually, and it does not matter when you paid that property insurance either. It only matters that it was paid in 2021.
- On "report mortgage interest" enter only 33% of the mortgage interest paid in 2021 as shown on your 1098 Mortgage Interest statement.
- On the "did you refinance?" screen, I am assuming you never at any time since you originally purchased the property, did a refi on it.
Once finished with income and expenses, elect to start/update the Assets/Depreciation section. If prompted, select "yes I want to go straight to my asset summary" and continue.
- Now you see your property listed there. But we have to "work it through" to add information to account for that 33% rental. So elect the Edit the property.
- On "Describe this asset" Rental real estate property" should already be selected. So continue.
- On "Tell us a little more about your rental asset" the one for "Residential rental real estate" should already be selected. Click continue.
- On "tell us about this rental asset" you see the information already filled in. Now understand that for property rented less than one year, when the rental period starts and stops in the same tax year, you are not required to depreciate it. I am recommending that you don't depreciate it since you're not required to. That way, you don't have to "keep track" of the depreciation taken for who knows how long before you sell the property. (The program will "NOT" carry forward the depreciation on this short term rental to following years. So if you take depreciation, it's up to you personally to keep a record of it. I say why bother when you are not required to?) So what you do here is make the "COST OF LAND" exactly the same amount as what appears in the COST box. That way, no depreciation is figured and you've alleviated a future migraine when and if you sell this property in the future. So make the changes and continue.
- On "tell us more about this rental asset" select I purchased this asset, then select No, I have not always used this item 100% of the time for business. Then select "I used this item for personal purposes before I started using it in this business".
For "Date I started using it in this business" enter 1/1/2021. Now for the tricky part.
The next item is "Percentage of time I used this item for this business in 2021 (e.g. 80%)" Be aware that for "YOUR SPECIFIC AND EXPLICIT SITUATION", that is the wrong question. The question should be asking you for the percentage of floor space that is rented. If I recall correctly, thats 33%. So enter 33% in that box, then continue.
- If you are asked if you want to take the special depreciation allowance, select NO and continue.
- On the asset summary screen click continue. This returns you to the "Your property assets" screen. At this point, we now need to "inform" the program of the date it was converted back to personal use. So elect to edit the property asset again.
- Click the continue button 3 times to get to the "Tell us more about this rental asset" screen. On that screen you already have some boxes selected and dates filled in. Do not change them. But now check the box for "This item was sold, retired, stolen, destroyed, disposed of, CONVERTED TO PERSONAL USE....."
- In the box for "Date you sold/retired from use" enter 10/31/2021, then continue.
- If presented the special depreciation allowance screen, select NO and continue.
- On "Special Handling required?" select YES. (If you select NO, you will be "forced" to enter sales information. You did not sell this property. So select YES.)
Now you should be on the "Your property assets" screen. click the DONE button Then for now, click the "Done with Rental Property" button.
You are completely done with this specific entry for the 10 month period of time the property was 33% rental.
You're now ready to enter a 2nd rental property entry for this property as 100% rental with an in service date of 11/20/2021. If you have any questions about what was just completed, please ask before you start your next rental property entry. It's important for the future, that you have a full understanding of what was accomplished with the above.
