What selections do I make in Turbo Tax to properly deduct Schedule E mortgage interest on our AirBnb room rental in our primary residence?

[alan-diamant-]

We rent out a room in our primary residence on AirBnB. We inhabit our primary residence 365 days a year.

I understand that our AirBnB Schedule E deductions should follow the model of: (AirBnB Room sqft/Total sqft)*(Days Rented/365)*Expense. I have been able to manually enter those adjusted deductions under the Schedule E Common Expenses.

However, when I get to the Schedule E "Report Mortgage Interest" page, Turbo Tax appears to be calculating a mortgage interest amount based on (Days Rented/365)*(Mortgage Interest), and doesn't take into account the square footage of the rented room. This means that TurboTax is reporting a interest deduction much higher than what I should be reporting. I am entering the proper Line 1 mortgage interest amounts that appear on our Form 1098 from our bank.

How do I fix this?

[Carl]

I have reported this to TTX on numerous occasions as far back as Feb, and get the strong impression I"m being ignored. You are absolutely right. Here's how to "make it right".

In the screen image below, you see where I"ve circled in red the item in question. It's asking you for the percentage of "TIME" you used it as business property in 2019. For your specific and explicit situation that question should read "enter the percentage of square footage that is 100% rental use in the tax year". So if you enter the percentage of square footage in that box, then your end results will be correct.

[alan-diamant-]

Thanks, Carl - This looks exactly like what I am looking for!

However, I can't find the Tell Us More About This Rental Asset page that you showed in your posting. I tried going through the Property Profile pages on my Schedule E Rental Summary page (below), but I didn't see it.

How do I get to the Tell Us More About This Rental Asset page?

Thanks,

Alan

[alan-diamant-]

Here are the steps I followed when entering my rental property:

1. Starting on the main TurboTax Deluxe Federal Taxes >> Wages & Income tab
2. Selected Rental Properties and Royalties
3. On the Income from Rentals or Royalty Property You Own page, I select Yes
4. On the Let's See if You're a Real Estate Professional page, I select None of the above
5. On the Is this a Rental Property or Royalty? page, I select Rental Property, and This Property Is Owned by: Both of Us
6. On the What Type of Rental is This? page, I select Vacation or short-term
7. On the Do Any of These Situations Apply to This Property? page, I select I rent out part of my home
8. On the Was This Property Rented for All of 2019 page, I select No, and then entered the rental days and the Personal use days, with the sum totaling to 365 days.
9. On the Property Ownership page, I select only owners as Yes
10. On the Number of Days Owned in 2019, I select Yes for owning all year
11. On the Let's Find Out if You're an Active Participant in This Property page, I select No
12. On the Did You Pay Anyone $600 or More for Work Related to This Property? page, I select No
13. On the Let Us Enter Your Rental Info for You page, I select Enter my rental info myself
14. On the Is Your Property in Any of These Designated Areas? page, I select None of the above

After that, I am back on the Review Your Rental Summary page. It seems like I should have been prompted to the Tell Us More About This Rental Asset at this point, which I didn't see.

I'm not sure if the difference is related to my using TurboTax Deluxe, or maybe if I am doing a Schedule E vs. Schedule C.

Alan

[alan-diamant-]

Bummer ... I upgraded from TT Deluxe to TT Premium, hoping that the Review Your Rental Summary page might become visible for my AirBnB property.

Unfortunately, it did not.

I guess Intuit got a little extra money out of me this year.

I still haven't been able to discover the path to the Review Your Rental Summary page. Can anyone give me a quick set of directions or tips to get there?

AzJazz

[DawnC]

You will find the page you are looking for by going through the Assets/Depreciation tab on the screen above.  You went through Profile, but you need to go through the Assets/Depreciation section to get to the page.  It is near the end.   

[alan-diamant-]

Hi, @Carl - I thought that your answer solved my problem, but now it looks like it didn't.

I got to the Asset Description and put the proper percentage of my rental property there (which was 5.4%)

However, it didn't seem to affect any of the Schedule E expenses ... those still seem to be calculated entirely based on the (Days Rented / 365) value without taking into account the percentage of my rental property.

My deductions are still about 18x higher than they should be.

Note: I just did a quick check with H&R Block Online taxes, and they seem to be calculating this correctly.

Is there something I might have missed?

Alan

[Carl]

Understand this only applies when two conditions are met

1) you are renting out a part of your primary residence.

2) 2019 is the first year you are renting out a part of your primary residence.

Now you are asked for percentages in two places. One in "Property Profile" and the other in the assets/depreciation section.

Elect to start/update Property Profile.

Is this Rental Property or Royalty? Select Rental, enter the address and continue.

What type of rental is this? Select single family home and continue.

Do any of these situations apply to this property? There are three check boxes on this screen you will select.

        -2019 is the first year i rented this property

        -I rent out part of my home

        -I converted this property from personal use to a rental in 2019

Click continue.

Converting your home to a rental. This screen is informational only. Read it and continue.

Was this property rented for all of 2019?  (I am assuming it was not a rental for all 365 days of the year.)

    Select No, this property was not rented all year.

    Days rented at fair rental price - the day count starts on the first day a renter "could" have moved in.

    Personal use during year:  ***ZERO*** (read the note below that on your screen)

Click Continue.

Do you have an office in your home? Answer this NO because a home office for SCH E income is not allowed unless you are a real estate professional and meet other specific criteria. Then continue.

Let us calculate your expense deductions for you: Select YES, and for rental use percentage enter the percentage of your floor space that is exclusive to the renter. As I under it, that's 5.4% of your floor space. Then continue.

You indicated you actively participate: Select YES and continue.

Did you pay anyone $600 or more for work related to this property? Select NO and continue.

Select Enter Rental Info Myself, and continue.

Is your property in any of these designated areas? I assume it's not. So select NO and continue.

That completes the property profile section and you are on the Review....Summary screen.

On that screen elect to start/update Assets/Depreciation

Do you want to go directly to your asset summary? Select YES and continue.

Here you will see your property listed with whatever asset name you gave it. Elect to EDIT it.

Select Rental Real Estate Property and continue.

Select Residential Rental Real Estate, and continue.

Tell us about this rental asset:

   Describe this residential rental real estate: Enter any description you want. I  use the property address.

   Cost: What I paid for the property when I initially purchased it. Add to this amount the cost of any property improvements you paid for after your initial purchase, and before you converted to a rental.

   Cost of Land: The amount of "Cost" entered above, that I am allocating to the land.

   Date purchased or acquired: The date you originally purchased the property.  Doesn't matter if it's a prior year, as that's very common.

Click Continue.

Tell us more about this rental asset.

  - Select "I purchased this asset new"

  - Select "No, I have not always used this item 100% of the time for this business"

  - Select "I used this item for personal purposes before I started using it in this business"

Date I started using it in this business ***MUST*** confer to the number of days rented in 2019. For example, if you rented it for 182 days, then this date has to be July 1st, 2019. The day count from July 1st to Dec 31 of 2019 is exactly 182 days. Remember, your day count started on the first day a renter "could" have moved in.

Now here's the biggie:

Percentage of time I used this item for this business in 2019: Do not enter the percentage of time here. Instead, enter the percentage of floor space. In your case, that will be 5.4%. Then continue.

Asset Summary: Click the "show details" checkbox and print this screen.

Now pull up IRS Publication 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf. There are two pages in this document you will need. First, page 38 has the MACRS worksheet you will use to manually figure the amount of depreciation that should be taken. (Pay attention to the asterisk note by line 7). You'll also need numbers off Table A-6 on page 72.

If your manual results are within a few bucks of what the program figures, you're fine.

[alan-diamant-]

Hey, @Carl - Thanks again for the useful information!

I realize now where the problem I have been fighting for weeks is ... It's item (2) in your list: 2019 is the first year you are renting out a part of your primary residence.

When I deleted my previous rental entry and selected that I converted my property in 2019, I now saw this screen for the first time: 

I started my AirBnB business back in 2015, and I don't get the screen above if I don't select the "Converted in 2019" option.

Unfortunately, since I have been running the AirBnB for years now (I had a CPA doing our taxes before), I don't think that TurboTax will work for me. I have to enter data for the previous years for our depreciation, and it would be flagged as an inconsistency. 

I really appreciate your (and @DawnC 's) great support!

I will look into a refund from Intuit.

Alan

[Carl]

I started my AirBnB business back in 2015, and I don't get the screen above if I don't select the "Converted in 2019" option.

Now it appears you're contradicting yourself. If you started the business with "this specific property" back in 2015, I would expect it to still be classified as a rental for every single day of every year after 2015. So you should be taking a full year's depreciation on it. Or are you doing this converting back and forth every year? If the latter, then you definitely can't use Turbotax. TurboTax just flat out can not correctly handle the back and forth conversion from rental to personal, back to rental, to personal and so on. It just flat out can't.

If classified as a rental the whole year, then the issue we've been addressing here for 2019 does not exist. Depreciation is only an issue in the first year you rent out "a part of" your primary residence.