Should I prorate the insurance premium and real estate taxes

[G237]

Hello there

I converted my home to rental starting from 4/21/18. I have paid the following

1. Full year property tax of $9355.22 for the period 7/1/18 to 6/30/19 on 10/5/18. So the taxes are for the period where the home was a rental and also was paid after the property was rented out

2. Full year rental insurance premium of $1541 for period 11/13/18 to 11/13/19 on 10/31/18. Again, the insurance was the period where the home was used as a rental and paid after the rental conversion.

Now, can I use the full amounts I paid above when entering the rental expenses for property taxes and insurance premiums? Please help.

[MinhT · Accepted solution]

No, you have to prorate property taxes, insurance and mortgage interest (if any) between the personal use period and the rental period. You have 110 days of personal use and 255 days of rental use. For property taxes and insurance, do not use the period of coverage to prorate, but just use the ratio 110/255.

In TurboTax, when entering the number of days of rental and personal use, only count the days during the rental period. In your case, if the home was rented from 4/21/2018 till the end of the year, use 255 days for rental days and 0 day for personal use.

If you need further help, please add a comment.

[G237]

Thanks for the prompt response. I have paid the property taxes for 7/1/17 to 6/30/18 in 2017 tax year. But from what you mentioned, I will be able to fully claim the taxes and the insurance paid in 2018 towards the rental expense for this year.

That being said, I am at a net total loss on my rental property this year where my expenses exceed my income from this rental. Do the rental losses carry over to the following years? Is there any other way I can recognize some of these expenses to reduce my future tax bill?

Thanks again for your help

[MinhT]

As you are using the cash method, expenses paid in 2018 are counted for 2018, without regard to the coverage period of the expenses. You prorate all expenses between personal and rental 110/255. The personal portion of insurance is not deductible.
The suspended rental losses are carried forward to future years or used when you sell your rental house.

[G237]

Thanks. I see. So even if I paid the amounts after rental conversion for rental duration, I will need to prorate all 2018 amounts 110:255.
Here's what I do in my case


Rental Period = 0.7% of total
-------------------
Property Tax = 0.7* total tax --> 6535.84
Insurance = 0.7 * total premium --> 1076.58

Personal use (Reminder)
------------------
Property Tax = 2819
Insurance = 464

I hope I got your suggestion right. Please correct me if not..

[G237]

..

[MinhT]

Yes, you are correct. Please note that insurance for personal use is not deductible.

[MPDX]

Why isn't it 110/365 and 255/365 respectively?

[Carl]

Note that it "DOES" "NOT" matter what the start/end date period the property taxes are for. It only matters in what tax year you actually pay those property taxes. 

 - Say you pay property taxes for a one year period that starts on 4/1/2021 and ends on 4/1/2022.

 - You converted the property from personal use to a rental on 6/1/2021.

If you paid those property taxes on or before 12/31/2021 then those taxes are prorated based on a tax year from 1 Jan - 31 Dec.  With an in service date of 6/1/2021 that would mean 5 months of personal use (5/12 of the amount on SCH A) and 7 months of business use. (7/12 of the amount on SCH E)

Same holds for the property insurance, with 7/12 of the amount on SCH E, and nothing on SCH A since insurance is not deductible as a SCH A itemized deduction.

Whereas if you paid the property tax on 1/1/2022 and the property remained as a rental for the entire 2022 tax year, then on your 2022 tax return you would claim property taxes for the entire 2022 tax year.