cancel
Showing results for 
Search instead for 
Did you mean: 
Level 7

Rental property - Mortgage interest and Property Tax seem to be double counted in TurboTax

I have a personal property which i converted to a rental property.

 

From January 1 - September 30 the property was used for my own personal use.  9 months.

From October 1st it was available for rent.  3 months

It was rented on December 1st.

 

When working on the rental income section in TurboTax, I entered the total interest and property tax paid.  I also told TurboTax the number of days the property was available for rent.

 

When I got the the mortgage deductions section, I again entered the mortgage interest and property tax paid.

 

When reviewing Schedule E (rental property income) and Schedule A (itemized deductions) I can see mortgage interest and property taxes are being double counted.

 

I adjusted the rental deductions as:

 

Mortgage interest deducted from rental income = 3/12 * Total mortgage interest paid

Property tax deducted from rental income = 3/12 * Total Property tax paid.

 

I adjusted itemized deductions as follows:

Itemized mortgage interest deducted = 9/12 * Total mortgage interest paid

Itemized Property tax deducted = 9/12 * Total Property tax paid.

 

 

 Just want to verify that this is correct.

 

Thanks!!!

1 Best answer

Accepted Solutions
Highlighted
Level 20

Rental property - Mortgage interest and Property Tax seem to be double counted in TurboTax

First and foremost, it's important to work through the program the way it is designed and intended to be used. That way, you will "always" enter the rental stuff first. There are some situations where that matters big time. Depending on *your* specific situation the program *may* automatically do the splits between SCH E and SCH A for you. But in other situations you have to do the splits manually yourself. Apparently your specific situation calls for manual splits.

In the case of automatic splits done by the program, the program will specifically give you a choice and ask you if you want the program to figure the split automatically, or if you want to do the split yourself, manually. If you are given this option then the screen that asks that question will have a YES and a NO button on it so you can specifically tell the program how you want to handle that split between SCH E and SCH A.

If you are not given that option, then *you* have to do the split *manually* yourself.  Basically, if you read the screen where you enter the mortgage interest for the rental property, it specifically states in the small print, "Here in Rentals & Royalties, we will ask you about your expenses for the time the home was *used* *as* *a* *rental*. Later, in Deductions & Credits, we'll ask about your expenses for the time when you *lived* *in* *the* *home*. " Below that it gives examples of the items to be split.

On the screen, "Was this property rented for all of 2018?" you will of course, select no and then be asked for additional data on that same screen.  For the 'days rented" the day count *DOES* *NOT* start on the day a renter actually moved in. The day count starts on the first day a renter *COULD* have moved in.

Then, your days of personal use will be **ZERO**. Just read the "note:" below the personal use days box.

In fact, here's my boilerplate on this, which contains a vast majority of the information needed for someone who's never dealt with this before.

It's *EXTREMELY* important that you get things spot on perfect in the first year (year of conversion) as the tiniest of mistakes has the potential to get bigger exponentially with each passing year.  Then when you catch that error years down the road (if the IRS doesn't catch it first) the cost of fixing it will be $expensive$.  So for the year of conversion, perfection is not an option; it's an absolute must.

  • Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence before, then this date is the day AFTER you moved out.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

  • RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the usable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.

Repair

Those expenses incurred to return the property or it's assets to the same usable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.

View solution in original post

1 Reply
Highlighted
Level 20

Rental property - Mortgage interest and Property Tax seem to be double counted in TurboTax

First and foremost, it's important to work through the program the way it is designed and intended to be used. That way, you will "always" enter the rental stuff first. There are some situations where that matters big time. Depending on *your* specific situation the program *may* automatically do the splits between SCH E and SCH A for you. But in other situations you have to do the splits manually yourself. Apparently your specific situation calls for manual splits.

In the case of automatic splits done by the program, the program will specifically give you a choice and ask you if you want the program to figure the split automatically, or if you want to do the split yourself, manually. If you are given this option then the screen that asks that question will have a YES and a NO button on it so you can specifically tell the program how you want to handle that split between SCH E and SCH A.

If you are not given that option, then *you* have to do the split *manually* yourself.  Basically, if you read the screen where you enter the mortgage interest for the rental property, it specifically states in the small print, "Here in Rentals & Royalties, we will ask you about your expenses for the time the home was *used* *as* *a* *rental*. Later, in Deductions & Credits, we'll ask about your expenses for the time when you *lived* *in* *the* *home*. " Below that it gives examples of the items to be split.

On the screen, "Was this property rented for all of 2018?" you will of course, select no and then be asked for additional data on that same screen.  For the 'days rented" the day count *DOES* *NOT* start on the day a renter actually moved in. The day count starts on the first day a renter *COULD* have moved in.

Then, your days of personal use will be **ZERO**. Just read the "note:" below the personal use days box.

In fact, here's my boilerplate on this, which contains a vast majority of the information needed for someone who's never dealt with this before.

It's *EXTREMELY* important that you get things spot on perfect in the first year (year of conversion) as the tiniest of mistakes has the potential to get bigger exponentially with each passing year.  Then when you catch that error years down the road (if the IRS doesn't catch it first) the cost of fixing it will be $expensive$.  So for the year of conversion, perfection is not an option; it's an absolute must.

  • Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence before, then this date is the day AFTER you moved out.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

  • RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the usable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.

Repair

Those expenses incurred to return the property or it's assets to the same usable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.

View solution in original post