Change of primary residence and state of residence // 2nd home no longer rented // rental income in two other states

[crowan]

In July 2020, we changed our primary residence from Virginia to Pennsylvania.  The new primary residence (in PA) had been our 2nd home.  In the past, we rented the second home out for short terms.  If the PA residence was already a second home, albeit rented occasionally, should we consider this a conversion from a rental property to a personal property?   Our former primary residence (in VA) is now a second home, with no rental income.  How do we reflect the use of that home in TurboTax?  Lastly, we have rental income in two other states.  If we were VA residents Jan 1 - July 4 and PA residents July 5 - December 31, and we file tax returns for rental income in the two other states, how should we apportion the credits for taxes paid to other states?   Would it be 50% of the tax credit on the Virginia tax return and 50% on the Pennsylvania tax return?   Thank you. 

[ErnieS0]

Yes, consider your change of primary residence to Pennsylvania from Virginia a conversion because you are no longer renting the property.

PA Home. Update your Property Profile to tell TurboTax that you converted the property from a rental to personal use in 2020. This stops depreciation on the property. If you sell the PA home in the future, you will subtract any depreciation claimed from the cost of the property. If you begin renting again on either a full-time or part-time basis, the depreciation “clock” will start ticking again.

In TurboTax Online, (1) Edit Rental property info, edit Situations, and click the tile Converted home to rental or rental to home.

In TurboTax Desktop/CD, (1) Start or Update Property Profile, (2) go to the screen Do Any of These Situations Apply to This Property? (3) Check I converted this property from a rental to personal use in 2020.

VA Home. The IRS allows you to claim mortgage interest, private mortgage insurance and property taxes on two homes, so enter a full year of those expenses (if applicable) from the Virginia home in Deductions & Credits. For PA, see the next section.

Rental Income and Expenses. Apportion your rental income and expenses on the PA home. You were part-year residents of Virginia and Pennsylvania. However, because you moved into your PA home in July when you stopped renting it, there should not be any PA rental income. Only VA rental income.

You can claim a half year’s mortgage interest, property taxes and private mortgage insurance as a rental expense. Enter the other half of mortgage interest, property tax and private mortgage insurance in Deductions & Credits (remember you get to claim two personal residences).

Credit for Taxes Paid to Other States. You will only have a credit for taxes paid to other states on your VA state return. There is no credit on the PA return because you did not rent the VA home so there is no VA income or state income tax for the time you were PA residents.

[crowan]

Ernie, that was a very helpful answer -- thanks!  There are two other factors that did not come through clearly in my original question and I would like to pose two follow-ups to you.

home

Prior to 2020. the PA property was a 2nd home that was also rented occasionally.  In 2020, the PA property was not rented at all, unlike 2019.  So I can record the date of conversion of the PA property from 2nd home and occasional rental to strictly 2nd home on Jan 1, 2020, right?  Then, I'd stop depn for the full year and would be able to deduct mortgage interest and taxes (subject to $10,000 limit) for the entire year, right?  I just wonder if TT will consider it a contradiction that I am converting the PA home to strictly personal use on Jan 1, and  did not change residence to PA  until July 5. 

2nd follow-up: The other rental property is in North Carolina.  It was rented all year.  That's where I thought I'd have to apportion the credit for NC tax paid between VA and PA, since I changed residency on July 5.  Does that sound right?  

Thanks, Ernie.    Chris Rowan

[ErnieS0]

@crowan Hi Chris. The conversion date on your Pennsylvania home can be January 1, 2020 if you decided you no longer wanted to rent the property because you were planning on moving in, and did not rent or attempt to rent the property.

That would suspend depreciation as of December 2019. You can claim a full year’s mortgage interest, private mortgage insurance and property taxes in Deductions & Credits.

TurboTax will not see contradictions between your conversion and move dates. Those are different sections of the program. It’s also not usual to stop renting months ahead of a conversion. Homeowners want to clean up and possibly remodel before they move in. Plus, they may not want tenants up to the last minute. Suppose a water heater broke and ruined your tenant’s possessions two days before their move out date and all your furniture was on a moving van headed to the house?

North Carolina property. Yes, you will have to apportion the North Carolina rental and other state tax credit between Virginia and PA.

[crowan]

Ernie, thanks for this follow-up information.  It's so helpful to have advice from someone who knows how the program works.    Chris