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SKjames
Level 2

Should you update the business percentage for a rental property from year to year?

I converted my primary residence into a rental property a few years back. For the first year, the house was a rental for 80% of the year so that is what I entered into TT. Essentially all years since then, the house has been 100% business use--I haven't lived in it and I constantly had renters minus a few multi-week gaps between when renters left and new renters arrived. I never thought to update the business percentage field (found under the "Review Information" window at the start of Rental Properties) until this year. Since the actual business usage percentage for last years was 100%, should I update this field this year and any future years (if I end up having mixtures of personal/business usage of the residence)? Or will adjusting this mess up my depreciation calculations, etc?

4 Replies
jayneway
Level 2

Should you update the business percentage for a rental property from year to year?

If it is used as rental 100% I would change to 100%

ThomasM125
Expert Alumni

Should you update the business percentage for a rental property from year to year?

You do need to reflect the correct percentage of business use. The depreciation will be affected but that is appropriate since the business use changed.

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Critter-3
Level 15

Should you update the business percentage for a rental property from year to year?

OH BOY ...  if the home was converted to a rental and you stopped living there at all then the business use % since the conversion was 100%  for  depreciation purposes not 80%.   If this has been less than 3 years since the conversion I would amend the prior year returns to correct this error. 

Carl
Level 15

Should you update the business percentage for a rental property from year to year?

a few years back.

What precisely is "a few years back"? 2018? 2017? 2016? Earlier?

For the first year, the house was a rental for 80% of the year so that is what I entered into TT.

That's a shared mistake. The small print on that screen says; "NOTE: If you only owned the property part of the year, then let us know if it was rented the entire time you owned it."  Therefore you correctly selected NO.

Then for days rented, the day count starts on the first day a renter "could" have moved in. Typically, that's the date you put the FOR RENT sign in the front yard, which is also the property's date of conversion to rental property; sometimes referred to as the "in service" date.

Then under "Personal Use" for the year, there's a note that reads, "The number of days during the year you lived in this rental property before converting it to a rental do not count as personal use days and should not be entered as personal use during the year". This is the statement I think you may have missed. So if you incorrectly entered anything greater than the digit zero, it's wrong. (Unless of course, you did "in fact" use the property for any personal use after the "in service" date (date you converted it to a rental).

Then, assuming the property was rented for every year after that, the business use percentage would be 100% for every single year after that first year. Note that vacant periods between tenants count for this, provided you did not use the property for any personal use for even one single day during the year.

So say a tenant moved out on Apr 1 and it took you the entire month of April to get the property "turned around" and ready to rent again. You start advertising on May 1, and finally get a renter moved in on Jun 1. The house sat empty for 2 months, but that does not change the fact it was still 100% business use during that time. So days rented would be "the entire year", provided of course you did not use the property for any type of personal use during the year, including the period of time it was vacant.

Note that "days rented" has no effect on the allowed rental deductions. However, the days of personal use *DOES* have a dirrect effect on your allowed rental deductions.

Even if you have say, 30 days of personal use, you still enter 100% business use if asked for that. Then when you enter your personal days the program will adjust that percentage accordingly, in the background without bothering you with the details.

 

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