Does Turbo Tax auto prorate rental income /expenses?

[lai_ching_long]

I lived 4 months in my home and then rented it out for 8 months.    Do I input only the portion of rental income & expenses or does Turbo Tax auto prorate since I had entered the # of days it was used as a rental property?

[MinhT · Accepted solution]

You'ii have to pro-rate expenses such as mortgage interest and property taxes yourself and enter them in the appropriate sections. Please make sure that the total of the amounts in the rental section and the personal deductions section is equal to the total actually paid.

[jpmintz01]

My version of TT auto-prorated expenses (even if I already prorated them). Might want to double check your Schedule E in your forms.

[Steve5454]

Mine auto-prorated as well. It even prorated repair and maintenance costs for me. I had to calculate full-year equivalents for all of my expenses and input that number for my expenses to be correct. Because of all the money I put into getting the house ready for rent, I knew I was operating at a loss this year. I only realized that TT was prorating everything because it said I owed taxes on my summary page. 

[Carl]

It depends on what you select. If you select the option to have the program prorate for you, then it will. I've found that to be problematic though.

While I like the fact that it pro-rates the mortgage interest between the SCH E for the time it was a rental, and the SCH A for the time it was not a rental, it's a problem with the other expenses.

For one thing, the property insurance is not a deductible expense anywhere on the return for the period of time it was not a rental.

Repair expenses incurred while it was classified as a rental are 100% deductible and not prorated. Repair expenses incurred before the property was place in service are just flat out not deductible anywhere on the return. However, while the program does not put those expenses on the SCH A (which it should not) the program prorates those expenses on the SCH E and that's just flat out wrong.

Therefore I elect to do the splits myself. Use the below as your guidance.

RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

• Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

• Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the usable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.

• Repair

Those expenses incurred to return the property or it's assets to the same usable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3^rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.

[AmeliesUncle]

@Steve5454  It the rental was 100% personal and then converted to 100% rental, be sure you are entering ZERO personal days (re-read that screen) for the year it was converted.