Rented out a room for 1/2 year and the whole house for the 2nd half of the year. How to calculate tax?

[ant2024]

I rented a room in my primary residence for the first half of the year. Then, rented out the whole house for the 2nd half of the year. I assume I have to calculate the portion of taxes, insurance, and interest accordingly as TurboTax will not be able to do so. Am I correct? How about depreciation? How do I know how much and how to enter in TurboTax?

[AmyC]

1. Correct, you should do two rental properties for ease. The first to handle a room in your house and the depreciation involved therein. Secondly, you would enter the whole house as a rental. 

2. When you enter depreciation basis, you use the lower of FMV or basis in the house. For the first rental of the room, use  lower of FMV or cost, simple. When you enter the house, you must reduce the basis by the amount of depreciation received from the room rental.

3.  When you enter the house, you must reduce the basis by the amount of depreciation received from the room rental. For entry of the properties, see here. To depreciate, you will enter the assets.

[ant2024]

Thanks for the information, Amy. 

Just to clarify, the cost basis of the room would be the percentage of the room (e.g. 25%) of the total cost basis. The basis of the whole house in the "2nd" rental would be the actual cost basis minus the depreciation received from the room rental. 

I also have another question. What should I answer to the question about the property was rented all year or not. Technically, both the room and the whole house was not rented for the whole 365 days but they were rented fully for each of the period (e.g. the room was available and rented from 1/1/2023-5/30/2023, the whole house was rented from 6/1/2023-12/31/2023).  

[DianeW777]

Below are the answers to your basis questions:

1. Just to clarify, the cost basis of the room would be the percentage of the room (e.g. 25%) of the total cost basis. The percentage would be room square feet divided by entire house square feet. The result is used to multiply it by the actual cost, net of land or the fair market value (FMV) on the date you began to rent it whichever is less (on that day).
2. The basis of the whole house in the "2nd" rental would be the actual cost basis minus the depreciation received from the room rental. If the total cost is less than FMV the answer is yes. Remember your cost basis is the lesser of actual cost or FMV.
3. What should I answer to the question about the property was rented all year or not. If this is for the period the whole house was rented (6/1-12/31) you will answer yes.  TurboTax will ask you when you began renting this house and you will enter 6/1/2023 which will allow TurboTax to calculate the appropriate depreciation.  You should use the correct percentage of any expenses such as utilities, insurance, real estate taxes that belong to the rental for the last 7 months. Any expense that is totally for the rental period should be used 100% as an expense.

@ant2024