Rental Property Expenses (Prorate vs direct amount)

[mjszabo]

Hi, I have a question. I have a short term rental that I rented for 155 days (5 months straight). When I look at the expenses I have a few questions. I entered the total for real estate taxes, insurance premiums, and mortgage interest and those get prorated for 155/365, which makes sense as those expenses are equally distributed throughout the year. However cleaning/maintenance and utilities were not evenly distributed throughout the year and were much higher while the unit was rented.  Here's an example:

Utilities for the year were $3789. Prorated at 155/365 that is a $1610 expense.

However, the utilities while rented (5 months straight) were an exact expense of $1926. 

This tells me there is a $316 disadvantage using the prorating method.

Is there a different way to handle this? Can I pad the calculations to get the exact value, as I know what it is.

[AnnetteB6]

No, you should not pad the expenses in order to have the calculations come out to be the number that they should be.  

Try going through the Rental Income and Expenses section and do not select the option for TurboTax to do the math for you.  If this does not give the results you expect, then the complication is in the days of personal use versus rental or in the Property Profile where you show whether the property was converted to a rental from personal use, or vice versa.  

If you are still having difficulty getting the correct numbers reported, please share more details about the entries you have made on the Property Profile section and we'll try to help with a solution.

[mjszabo]

Hi, sounds good. Thanks for the info. Here is my property profile. I looked everywhere for the option to not select "TurboTax to do the math for you". I even tested making a secondary property and couldn't get to it. How do I get to that screen?

[AnnetteB6]

My apologies, after taking a closer look, the option to let TurboTax do the math shows up when only a portion of the property is being rented, not in your case when it was rented part of the year.  

However, taking a look at your Property Profile, I see that you indicated that the property was converted to a rental during 2023.  You also show 210 personal days and 155 rental days.  If the personal days occurred prior to your converting the property to a rental, then that number should be zero.  Personal use days are only entered if they occur after the property was converted to be a rental property.  

Changing the personal use days should correct the prorated amounts for expenses directly related to the rental (cleaning/maintenance, utilities), but now you will need to prorate the items that are part personal and part rental (real estate taxes, mortgage interest, etc.) and enter only the portion that is related to the time the property was a rental.

@mjszabo 

[mjszabo]

Hi, thanks for the extra detail. Ok, well maybe this will make it more clear. This is for AirBnB, so I lived in the house until May and then rented it out through September, then lived in it for the rest of the year. So I converted the entire property to a rental and then converted it back to a home. Looking at the information for personal use, copied below, it seems that all 210 days should be listed as personal days. 

"PERSONAL USE : A day of personal use is any day, or part of a day, that your property was used by: 1) you for personal purposes... The following are NOT treated as personal use days:* days you used the dwelling as your main home before (or after) renting it, if: 1) the unit was rented 12 months or more or will be."

So I'm thinking I have it all listed correctly, and that the calculations for expenses directly related to the rental (cleaning/maintenance, utilities) are not being done correctly. This seems to be a limitation in the TT software. As I look at the Schedule E form, I could just enter that information exactly as I calculated it. Should I just adjust them to be what I know is right and have documentation for?  

Thoughts?

[Carl]

The below provides the clarity that either the program does not, or it was missed because you didn't realize you have to scroll down to see the fine print.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence or 2^nd home before, then this date is the day AFTER you moved out, or the date you decided to lease the property – whichever is later.
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 was contracted to move in, and/or "could" have moved in. That would be your "in service" date or after if you were asked for that. Vacant periods between renters do not count for actual days rented. Please see IRS Publication927 page 17 at https://www.irs.gov/pub/irs-pdf/p527.pdf#en_US_2020_publink1000219175 Read the “Example” in the third column.
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, 2nd home, or any other personal use reasons 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.

[mjszabo]

@Carl So how else would airbnb work. Primary residence until renting it for five months and then returned to my primary residence. I lived in the property after it was a rental. Theres no option to convert and unconvert a rental. 

[Carl]

Theres no option to convert and unconvert a rental.

Yes there is. But it's not obvious. Not even anything close to obvious really. You already know how to convert a property from personal use to rental. To convert it back you personal use, you have to work through each individual asset one at a time and select the option for "I stopped using this asset in [taxyear]. When asked for the disposal/sale date, enter the date the last renter vacated the property. On the "Special Handling Required?" screen, select YES.  Note that if you select NO then you are telling the program you sold the property and you will be forced to enter sales information. Therefore, you must select YES.