For the most part, the program will walk you through all the steps. So I won't do that. But there is no information and clarity you need, that the program does not provide. Start by working through the Rental & Royalty Income (SCH E) section of the program the way it is designed and intended to be used.
When entering the initial property information you will be asked of there were any property improvements. Answer this question ***NO***. While you did do property improvements that add to the cost basis of the property, you will enter those improvements later, in the Assets/Depreciation section. If you enter them at the same time you are entering and setting up the initial property profile, then the numbers used for depreciation *will* *be* *wrong*. I already know this to be a fact from personal experience.
Now my sceen shows that you are using the CD version of Home & Business that you installed on your computer. That's a good thing. Assuming you do not have a SCH C business, this means the first thing you will deal with will be the rental property stuff. Another good thing.
You *will* screw it up the first time or two you are entering data. Don't worry about tit. It's not like you learn this stuff through osmosis. When you've screwed it up beyond the point of easy recovery, simply start over from the beginning and try again.
To start over simply close the TurboTax program. Then delete the .tax2019 file from the documents/turbotax directory. When you restart the program it's "as if" you just installed the program. BE CAREFUL here. If you used TurboTax 2018 to file last year's return **DO** **NOT** delete the .tax2018 file. If you do, you're screwed and *NOBODY* can help you recover that data.
The below information will provide you the clarity you need, that in my personal opinion the program does not provide. You will have more questions as you work this through. But work through the SCH E seciton the first time on your own anyway. Many times the question you have "at the moment" is clearly answered one or two screen later. Then if necessary, delete the .tax2019 file and start over, asking those questions you need further understanding or clarification on.
Rental Property Dates & Numbers That Matter.
Date of Conversion - If this was your primary residence or 2nd home 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. The fact it took you six months to actually get a renter in there *does* *not* *matter*.
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 useable 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 useable 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.
