Tracking expenses on multi-family home that i own and live in

[sarajane]

i own a three-family home. i live in one of the apartments and rent out the other two. turbo tax is allocating all my home expenses so that 2/3 can be deducted from rental income, but some of the expenses were just for the rental apartment (ex. painting the walls in one of the apartments) and so should be deducted at 100%. I don't see a way to make it do this. Please advise--

[PaulaM · Accepted solution]

Enter the paint expense in a grossed up amount in order for the allocation to apply the correct total. The results will skew the performance for both units, but it doesn't really make a difference, because all rental expenses flow to 1 line on the Schedule E. See attachment.

Ex: Paint expense should be $3,000. Enter 3,000 X 1.5 = $4.500. 2/3 of 4,500 = $3,000

The correct amount of the expense ($3,000) will be recorded and split between the two units. But both amounts funnel to one line on the schedule E.

[sarajane]

I called the turbotax hotline before i received this answer. in case anyone else has an owner occupied multi-family and they run into this, here is what they said and i did with success. i had to delete all my work and start again. *this time around i made sure to check the box saying that you want to allocate and do the math yourself, rather than check the recommended box that turbotax will do it.*

turbotax response: You called regarding allocation of rental expenses.  There is a screen that asks whether you want Turbo Tax to allocate expenses or if you want to enter directly.  To get back to this sceen, go to My Account - Tools - Delete form and then look for and delete the Schedule E Worksheet related to the rental.  You will have to reenter all the data for the rental.

[PaulaM]

That is one solution as well, but depending on whether you have depreciation records in place, be careful before deleting.  Best to use that method if in the 1st yr. of operation.

[sarajane]

oh drat, i deleted it already. it is my first year of operation, but i wanted to start depreciation this year. is it possible to do so with this method (without having to do complicated depreciation math myself)?

[PaulaM]

Here I how I would do it: I would set up the rentals as two separate units. For the cost of the property, enter 1/3 for each one. This will take care of the depreciation and individual unit expenses. You will then just need to compute the math for the shared expenses-interest, property taxes, insurance etc. If you add another shared asset down the road (like a roof), you would then just add 1/3 of the cost as a new asset to each unit and depreciate for each unit.

[sarajane]

Thanks for all the help. Because of how I keep my records, I think I will use your first suggestion--skew my rental-only numbers upwards. One last question: will this work for depreciation as well? I put in new windows in one of the Rental apartments, could I times this by 1.5 and then will it depreciate correctly? Thank you!!

[PaulaM]

Yes it should, but note the 1.5 was just for my example above. You will need to apply your own multiplier. Do review the schedule E to make certain the amounts are correct and make adjustments accordingly.