Depreciation for partially rented house

[tanbowen]

Hi there,

  I purchased my primary house in Sep 2021 and rented out part of it (say, 40%) on the same day as I got the keys. But I'm confused while calculating the depreciation for my house. I know only the rental portion can be depreciated, so I multiplied my total cost by 40% and entered the results in the "Tell Us About This Rental Asset" portion (see below). But on the next page, TurboTax asked me if this business is used 100% since I acquired it (please see the second image below). Since the 40% portion was rented out all year 2022, shall I answer "yes" to this question? And the date that I started using it for business should be 01/01/2022 since I have reported the depreciation for 2021, right? (I think the way I did for 2021 was wrong...)

  Also, could anyone please help me understand the differences between "rental percentage" and "business percentage", please? Because I also purchased some furniture in 2022 which was used by both me and my renter that needs to be depreciated.

  Thanks so much for the help, and happy new year 🙂

[Anonymous_ · Accepted solution]

If you make a manual adjustment for the cost basis of the asset to reflect the actual percentage of use in the business (e.g., 40%), then that 40% is used 100% for business purposes.

[Carl]

Rental Percentage - This is the percentage of physical space. What percentage of the entire property is exclusive to the renter. Example: 20%

Business Use Percentage - This is percentage of time. Of the percentage of the property that is exclusive to the renter (20% in this example), what percentage of time is it used for business purposes? In the case of a rental, you utilize it 100% of the time for business.

Be aware that there is a flaw in the program in calculating the correct depreciation. Actually, it's a flaw in the question, not the math. To confirm if you experience this flaw or not, use the worksheet from IRS Publication 946 to manually figure the depreciation amount for that first year, and confirm it matches what the program figures. IRS Publication 946 is at https://www.irs.gov/pub/irs-pdf/p946.pdf  Use the MACRS worksheet that starts on page 37, and the depreciation table you'll use is table A-6 on page 72.

If your manual figure does not match the TurboTax figure, let me know and I'll show you how to make the program do it right so you don't have to do a manual over-ride. (If you do a manual over-ride for this, you will not be able to e-file the return, and will invalidate the 100% Accuracy Guarantee.)