Relationship between Percentage of Rental Use v. Percentage of Business Use

[SSMD]

Two years ago, I acquired an apartment that I rented to others. Last year, my daughter moved into the apartment and shared it with two rent paying roommates. 

I understand that, for year 2, I need to change Percentage of Rental Use from 100%  to the lower percentage (Schedule E - Line Q). 

My question is what do I do with Schedule E - Line 6: "Percentage of business use". That value was clearly 100% year 1.

What do I do now in year 2? 

I have trying to figure out the relationship between the two percentages in TurboTax. 

[ThomasM125]

You would change the percentage of use in the year your daughter moved in. That way the expenses associated with the non-rental portion of the property will not be deducted going forward. 

[SSMD]

Are you referring to "Percentage of Rental Use" or "Percentage of Rental Use"?

The year my daughter move in was year 2 (2022). 

Thanks. 

[PatriciaV · Accepted solution]

Percentage of business use refers to how you use the property. If the property is shared between business and personal purposes, then the percentage of business use would be less than 100%.

Percentage of rental use is based on the number of days the property was rented versus the days of personal use. This usually applies to 1) a vacation property that you rent to others or 2) a rental property that you occasionally occupy. 

In your case, you purchased the property as a rental, so business use was 100%. For the current year, you have both personal and business use, so the business percentage will be less than 100%. 

If during the time it is used as a rental, you personally occupy the portion that is defined as rental space, those days are considered personal use days. As long as you don't use the rental space, it's possible that the business use percentage will be less than 100% but rental use is 100%.

Also note that these two percentages can change year to year.

[SSMD]

Thank you!  Knowing that the numbers can change year to year is very helpful. 

One follow-up item, it sounds like, in my situation (where my daughter is sharing the apartment with two rent paying tenants), that the Percentage of business use and Percentage of rental use will be the same value.

Does that sound correct to you? 

[PatriciaV]

Yes, those percentages would be the same unless you used the rental space for a personal visit (for example) or rented her space to a third party. Maintaining the spaces as they are used now will avoid any confusion during the year.