cancel
Showing results for 
Search instead for 
Did you mean: 
Returning Member

Rental Property Deductions Questions- Converted from Primary Residence to Rental mid month mid year

I converted my primary residence to a rental on June 28th, meaning I collected first month’s rent on June 28th. This would mean I would claim 7 rent payments (last one would be December 28th) as income, correct? I am asking because December 28th’s payment was technically mostly for January 2020. Lastly, when I enter all my rental property deductions (HOA expenses, mortgage interest, PMI insurance, and general home insurance), do I use 1) 186 days for June 28th to Dec 31st, 2) 7 months since I collected 7 rental payments, 3) or 6 months since they moved in towards the end of June? TurboTax Premier Software also says on the rental property section to enter total costs for HOA fees and mortgage insurance and it’ll calculate the portions for you, so I am not sure when to enter the total costs for the year or just rental portion of the year? Regardless, I need help with how to calculate this since I did not start renting at the beginning of a month. Thank you!

4 Replies
Highlighted
Level 11
Level 11

Rental Property Deductions Questions- Converted from Primary Residence to Rental mid month mid year

@bacaj1202 , let me first provide some general rules ( and which will mostly answer your questions :(

(a) Rental income is reported for the year  --- that is all the monies received as RENT ( received or constructivelly received)

(b) Rental deposits  ( such as last month, security deposit, pet deposit etc. etc. ) are not income -- they are treated as escrow  amounts and the use/ holding/ interest etc.  are  dictated by state law. 

(c) your property is rented from the date it is available for rent i.e. when you start advertising ( formally or otherwise).  And this date is important because your depreciation and personal use  limits  start from this date

(d) HOA, Mortgage, fire insurance  and simliar expenses  are to be allocated  ( rental period  vs. whole year for the first year at least )

(e) Utilities ( that you pay while the property is being rented is also allocated ( for the first year at least)

(f) repair, maintenance performed after rent start date ( see above ) belongs to rent account

(g) all these are reported on schedule-E

TurboTax will ask for these details ( when you tell it that you have rental property ) --- just go through the screens carefully.  Note that for depreciation, it will ask for  Cost basis ( acquisition cost plus cost of any improvements  performed before start of rental period ), cost of land and  thereby determine depreciable  basis and the allowable depreciation for the year.

 

Hope this answers your questions --- if I have missed something and or you need more help, please write in comments.

Highlighted
Returning Member

Rental Property Deductions Questions- Converted from Primary Residence to Rental mid month mid year

Thank you so much for your reply. I really appreciate the thoroughness.

 

So let me reiterate what I feel you are indicating:

 

a) even if I received $1,000 on December 31, 2019, for January 2020 rent, I would claim it in my 2019 taxes. Correct?

b) understood

c) yes, I put it for rent in January 2019, even though I lived in it until I rented it out mid year. Can you further explain "personal use limits" as it pertains to my example? How would it effect what I put for mortgage insurance on rental property deductions vs my personal deduction?

d) how do I determine the allocation? Do I use 7 months because I collected 7 payments (June 28th-Dec 28th)? Or do I use 186 days [(186/365) * HOA payment]?

e) I pay pest control bimonthly. Same question as above? Do I only claim whatever payments were paid after it was rented?

g) if I paid $10,000 in mortgage interest in 2019, how do I determine the allocation? (refer back to my similar question on d)

 

Lastly, after I enter all the above. I would use the remaining amount (total minus whatever I put for property rental deduction) to enter into my personal deduction for mortgage interest, PMI, and property taxes, correct?

 

Sorry for the lengthy question. First time renting out a property.

Highlighted
Level 4

Rental Property Deductions Questions- Converted from Primary Residence to Rental mid month mid year

You would manually prorate things using the 186 days (or more days if it was available for rent before that, and you were not using it for personal use).

 

Yes, you will manually prorate your personal usage for the Mortgage Interest, Real Estate Taxes, and Private Mortgage Insurance, then enter that in the Itemized deductions section.

 

When the program asks you for the number of rental days and number of personal days, in almost all cases you will enter ZERO for personal days.  That is because you used it for zero personal days AFTER it was converted to a rental.

Highlighted
Level 11
Level 11

Rental Property Deductions Questions- Converted from Primary Residence to Rental mid month mid year

@bacaj1202 , may I suggest that you read through this publication by the IRS -- it covers all information, rules, regulations, etc. for residential rental property.-->  https://www.irs.gov/pub/irs-pdf/p527.pdf

If you still have questions after that, please feel very welcome to add to this thread.