Sched E Worksheet Vacation Home Loss limitation

[cmg1]

I have an aircraft hangar (Property Type 4, Commercial Building) that I rent out space in and use part of myself, the percentages vary month to month.

In 2020, on the Sched E Worksheet, I made a mistake thinking a simple solution was to fill in Days Rented at Fair Value 321(88%) and Days of Personal Use as 45 (12%), even though I was there all year, as were various renters. I figured it reflected my % of use.

Sched E worksheet placed ALL of the depreciation as Vacation Home Loss Limitation (Col d). It also placed the 88% Days Rented at Fair Value portion of the General Home Operating Expenses there. The balance,12% Allocated to Personal Use (Col e). 

This seems unfair that I can't deduct any of those expenses as the majority of use was renters. This is not a Vacation Home; it is a Commercial Building.  Schedule E Worksheet now carried those Vacation Home Loss Limitations over to 2021 and now 2022. Does that mean at some time I will get to use them? Is there a better way to allocate my usage?

[Anonymous_]

---

@cmg1 wrote:

This seems unfair that I can't deduct any of those expenses as the majority of use was renters. This is not a Vacation Home; it is a Commercial Building.

---

I agree; this is not a vacation home nor does it involve a partial rental of a residence such that Section 280A would kick in.

I am going to page @AmeliesUncle for your specific query in order to get further input on any possible proration.

[PatriciaV]

Yes, since you have not reported this property properly in the past, you should amend your tax returns for all tax years that included this rental property. Because you personally use some portion of the property, this is considered an "owner-occupied" rental.

Commercial buildings are depreciated differently from residential properties (ex: vacation rental). This difference may affect the net income or loss from your rental activity and the passive loss carryovers (if any) to subsequent years.

Note that in most cases you must amend your return and file Form 1040-X within 3 years after the date you filed your original return, or the due date, whichever is later. Tax returns for 2020 may be amended until April 2024. Complete each amended return in order from earliest date to most recent, using the amended information from the prior year as you move forward in time. You do not need to wait for the IRS to process each amended return before you file the next one. Once you have completed all the amended returns, use your 2021 amended tax file to update your entries for 2022 (or start a new return).

To amend first year you reported this activity, review your answers for the Property Profile in TurboTax. Choose "Commercial" for "What Type of Rental is This?" Also check the box for "I rent out part of my home" and indicate it was rented all year.

On the page "Let Us Calculate Your Expense Deductions for You," you may choose to let TurboTax do the math for you. In this case, you enter 100% of your rental expenses. When you check the "Yes" box, a popup will appear where you can enter the percentage of the property that was rented out (usually by square feet). 

If you let TurboTax do the math, deductible personal expenses (like property taxes and mortgage interest) will be entered as itemized deductions for Schedule A (do not enter them again later). If you choose to allocate expense yourself, you will need to enter only that portion of your rental expenses that apply to the square footage that was rented. In this case, enter your personal use expenses under Schedule A.

Under Assets/Depreciation, the hangar is Rental Real Estate Property >> Nonresidential real estate, used for business 100% of the time.

Repeat this process for each amended return. If you start over on your 2022 return, these property settings should be imported from the 2021 amended return.

You may also consider obtaining the assistance of a local tax professional to handle the amended returns.

Additional info:

• How do I amend my federal tax return for a prior year?
• IRS Form 1040-X, Amended U.S. Individual Income Tax Return, Frequently Asked Questions

[Anonymous_]

@cmg1 

If it turns out that you need to divide expenses between rental and personal use of the hangar, then you will also have to divide the depreciation deduction as well (i.e., allocate a portion to personal use, which portion will be nondeductible).

@AmeliesUncle 

[AmeliesUncle]

As Patricia pointed out, because you are continuously renting out only a portion of your property, you should not be splitting things by rental days and personal days.  You should indicate you are only renting a portion of the building.

If I remember correctly, that will cause TurboTax to split the expenses, but it does NOT split the depreciation (double check to be sure).  For the depreciation, you would need to enter the "asset" and say it is used xx% for business.

[Anonymous_]

---

@AmeliesUncle wrote:.

If I remember correctly, that will cause TurboTax to split the expenses, but it does NOT split the depreciation (double check to be sure).  For the depreciation, you would need to enter the "asset" and say it is used xx% for business.

---

Exactly right. The split is only applicable to expenses; the depreciation deduction is controlled by another subsection of the program and a percentage needs to be entered accordingly.