Rental Property Interest

[umich]

Need recommendation for best way to proceed with entering data for the following hypothetical situation (numbers are hypothetical for example only):

Have a $400,000 refinanced mortgage on primary residence.  $300,000 was cash out and used to purchase a condominium rental property beginning April.  Prior to April there was a $100,000 primary property mortgage loan that was retired and refinanced/increased with the $400,000 mortgage loan.

Consequently, have interest expenses of $500 on primary property until April; $5,000 interest to be applied to rental property after the April purchase; and $3,000 interest after April to be applied to primary residence.

Where, how, and in what order do I enter this info?

Do I start with the rental property discussion, which feeds to Sched E or do I start with the itemized expenses feeding to Sched A?

[AliciaP1]

You can start either with Schedule A or Schedule E, but I find it easiest to start at the beginning of the alphabet in this case!  

Starting with the primary residence discussion, you should combine all of the 1098s directly related to the refinance and enter it as one 1098.  Any 1098s not directly related to the refinance should get entered separately.  Follow these steps to enter your mortgage info:

1. Gather all of your 1098 forms related to your refinance (the form from your original lender and the form from your new lender).
2. Grab a calculator and add together the box 1 amount from each form. Enter the total in TurboTax as Box 1 Mortgage interest.
3. Add the Box 5 amount from each form and enter the total as Box 5 Mortgage insurance premiums. (If you weren’t required to pay mortgage insurance, these boxes will be blank on your forms and you won’t enter anything.)
4. Add the property tax paid from each form and enter it in the Property (real estate) taxes box.
5. Next, finish adding info for boxes 2, 3, 7, and 11 using Form 1098 for the original loan.

Then I would move on to the rental property discussion and enter the Form 1098 for that property and any other expenses as you complete the walkthrough.  

Tip: Rent is considered income in the year you received it, not the year it applies to. This means that a rent payment for the month of January 2022 collected in December 2021 is reported on your 2021 return.

[umich]

As a follow-up, I need to clarify personal use day count for a rental property.  My rental condo is used as follows:  290 days rented, 19 days personal use, 56 days available for rent but empty.  When I answer the Turbotax question(s) about rental days should the rented days be 290 (actual occupied by renter) or 346 (actually occupied by renter plus available but empty).  Wording is ambiguous and "rented" could be taken to mean "available to rent" whether occupied or not.  Suggest that three input entries be requested that add to 365 to avoid confusion.  Thanks.

[PatriciaV]

"Rental days" are considered to be those days when the property was ready and available to be rented, even if vacant. The IRS is specific on this point only with regard to expenses. See IRS Pub 527 Residential Rental Property - Vacant Rental Property

[umich]

Not sure I'm getting facts across correctly, based on your comment:  "Then I would move on to the rental property discussion and enter the Form 1098 for that property and any other expenses as you complete the walkthrough. "

I do not have a Form 1098 for a mortgage on my rental property, as it is not mortgaged.  Only have 1098 on my primary residence, which generated the refi cash-out amount used to purchase the rental property.

Are you saying to allocate part of the interest from my primary residence Form 1098 to my rental (based on cash-out amount portion of total refi), and then enter that amount as "the Form 1098 for that property"?

[PatriciaV]

As your work through the interview for each Form 1098, you will be asked several questions about how the loan proceeds were used. Be sure you answer those questions as accurately as possible. Your answers will determine how the interest from Form 1098 is allocated - to your rental properties or to Schedule A - according to the current interest deduction rules. TurboTax will calculate and allocate the interest for you, but you should review the final result to be sure you agree with the outcome.

Additional info:

Where do I enter my 1098 mortgage interest statement?

What do I do if I have multiple 1098s from refinancing my home debt?