Split Mortgage interest on 1098 due to rental property conversion, do I check the box "the interest amount is different from what on my 1098"

DO NOT NOT NOT enter the mortgage interest payments twice .... (ignore the "doesn't match" crud )  you will either : 

1) manually  allocate the amount in the Sch E & Sch A sections by only entering the amount belonging to each section 

OR 

2) allow the computer to do the allocation based on the personal/rental use %

Read the screens carefully and then switch to the FORMS mode to see the allocations between the Sch E & Sch A ... review the worksheets if needed. 

Also ... #1 mistake user's make in a rental conversion that will mess you up big time ... once the home is converted to a rental you did NOT have any personal use days (unless this is a vacation home that you use between renters).  READ that screen carefully. 

@Critter#2
One more question, but before I get to it-
1) Do I check the box that says ""the interest amount is different from what on my 1098" if I manually allocate interest between sch e and sch a?

2) To add a wrench in this whole thing, once the property was converted to a personal residence, I used it as my home office. The "job related expenses" portion of TT asks for the property address and also asks for the mortgage interest and property taxes paid. Do I give them the totals for these two items for the portion of the time it was a personal residence (ie $5k?).

1) no
2) this will take some math on your part ... you will manually need to enter all the mort int, property taxes & home insurance ... no NOT let the program do it for you.

Wait a minute. I'm not clear on #1. I'm interpreting it as double-dipping on the depreciation. Are you saying you converted the property to rental, *AND* use a room in that rental as a home office "while" the property was classified as a rental?

"once the property was converted to a personal residence, I used it as my home office"

Oh okay. missed that.

Had to read everything  3 times myself before I saw the time table ... it is messy.

Hi @Carl @Critter#2 Let me clarify. From Jan - Mar the house was a rental. (3 month). From April-December it was a primary residence (9 months). The Home office was used October-December.

Property Tax Payments were Made:
Payment 1- $3k - April
Payment 2- $3k - Nov
Payment 3- $3k - Nov (doubled up to take advantage of the most deduction for 2017 before new 2018 tax plan came into effect)

Question 1:
So if I have $10k in interest total, is the below breakdown correct?

Rental Property - Schedule E ((3/12)* $10k=$2.5k) in interest.
Primary Residence - Schedule A(9/12) * 10k=$7.5k) in interest.
2106 Home Office-  (3/12)*$7.5k=1.875k in interest * Amount of house used


Question 2:
for the Primary Residence I listed above "Primary Residence - Schedule A(9/12) * 10k=$7.5k) in interest." the interest I am reporting for schedule A is $7.5k, my 1098 says $10k. DO I check the box that says this amount is different than is reported on my 1098? I just dont want to get audited for the wrong reason. I think the reason the IRS has this box is for misreported 1098, not for the splitting purpose I am doing, but just want to verify I do not Check this box.

Question 3:
Property Taxes:
From what I understand, property taxes are not prorated and are based on the day they are expensed. (I read this on several websites)
For this reason, I would take all 3 property tax payments on Schedule A. Is this correct?
For 2106 Home OFfice (3/12)* $9k= $2.25k*amount of house used.

Can you help me with each of the questions above separately so I dont get confused.

1)  Mortgage Interest and Real Estate Taxes basically skip Form 2106, and go directly on Schedule A.  So you can just enter the $2500 as a rental expense, and $7500 as an Itemized deduction on Schedule A.

2)  I have no idea why it asks you that, but it doesn't really matter.  Checking that box may just ask you some additional questions.  Just make sure that the $7500 shows up on Schedule A, and you are fine.

3)  I think the taxes should be prorated.  Use 3/12ths for a rental expense, and the rest as an Itemized deduction on Schedule A (see Question 1).

For Q1 and just for clarity, change the word "amount" to the word "percentage" and we're in agreement. Then it will read, "2106 Home Office-  (3/12)*$7.5k=1.875k in interest * Percentage of house used". But you're going around your elbow to get to your thumb that way. TaxGuyBill's way achieves the same end result and it's a heck of a lot simpler.
For Q2 - What TaxGuyBill said.
For Q3 - What TaxGuyBill said.

@TaxGuyBill TT's interview mode, when in the personal/deductions & Credits/Home Office asks "did you own this home", "How much did you pay in interest and taxes" It then attaches to one of the existing 1098's in the system. It asks when you bought the house, when you put it in service, cost of house-land, etc.

At the end of all this it culminates to 2 things 1) A total "RENT" expense that rolls up into form 2106 AND 2) A Home Office Asset which is depreciated a specific dollar amount (in my case $161). TT actually depreciated the property (as if it was a iPad). Its essentially allowing me to take depreciation on the property. I have never seen this before. Is this normal?

..

Although "rent" is an improper term, if it is composed of the Home Office percentage of Utilities and Repair/Maintenance, that is fine.  Yes, it is required to also be claiming depreciation on the house.

@TaxGuyBill Does the home office worksheet get transmitted to the IRS? I thought it was just for our records. Essentially how we came up to the home office deduction number. I looked thru a tax return from 2014 and my accountant transmitted the worksheet with the return (it looks like). TT says "for your records" on the home office worksheet. Any idea if this gets transmitted to the iRS?

No worksheets get transmitted ... only forms, schedules & statements.  

And unless the accountant went and purposely attached the worksheet to the return it would not have been sent from a professional program either ... however he may have given you a copy of all the worksheets with the return in your packet.

To see what gets sent look in the PRINT Center and choose the first option ... the return only.

@TaxGuyBill I just manually reviewed the "Employee Home Office Worksheet". I am specifically looking at lines 25 vs line 34.

This is for the primary residence Home office, the house which I own and had a home office in for 3 months out of 12 months.

Line 25= Takes into account all the deductible mortgage interest, and real estate taxes.  ($25,000) (Note this includes the TOTAL mortgage interest and Real Estate taxes paid, TT did not prorate this).

Line 34=Insurance, Rent, Repairs, Utilities, Other expenses. A Percentage of this total. No RENT. ($300)
And eventually line 35 ("Take the smaller of line 25 or line 34")

So I guess I am getting pretty screwed here becauseI am required to take Line 34 (the $300) vs the $25000 as the allowable operating expenses.


You mentioned earlier that "Mortgage Interest and Real Estate Taxes basically skip Form 2106, and go directly on Schedule A.  So you can just enter the $2500 as a rental expense, and $7500 as an Itemized deduction on Schedule A"

Can I just consider it a rental expense which culminates on Line 34? How much do I put on there?

I'm not looking that the form right now, but here are my thoughts:

As I said before, Mortgage Interest and Real Estate Taxes basically skip Form 2106.  That amount goes directly to Schedule A.

So yes, your Home Office expenses on Form 2106 are composed of the expenses OTHER than Mortgage Interest and Real Estate Taxes because the Mortgage Interest and Real Estate taxes have already been used.

@TaxGuyBill Does this mean I can put in a number for the rental expense? You said above to put in a 2500 rental expense, but how do I go about calculating the exact number. This is for the primary residence which I am taking the mortgage interest deduction on SCH A.

If it was rented exactly 25% of the year (3 months out of 12 months), enter 25% as a rental expense, and the other 75% as a personal expense.  If it was rented a different percentage of the year, use that percentage.