How do a specify square footage or percentage for a partially rented out house so I can accurately divide mortgage interest deduction?

[paulkeskeys]

We rented out one floor of our townhome for 150 days of 2025, equating to one third or 33% of our home. My understanding is that we can deduct the mortgage interest we paid on this portion of the property, for the amount of time we rented it out at fair value. When I select "part of home" for rental type, I can put in the number of days we rented the space out for (150) but don't see anywhere to input how much of the property was rented out during this time. This means that, when I insert the total interest for the deduction for Schedule E, and then insert it again from our 1098 for Schedule A, it appears that the interest is going to be counted twice for those 150 days. I have read in other forums that TurboTax should automatically be able to calculate the correct amount of mortgage interest for the partial rental and for the rest of the home, but I'm not seeing how to do that since I can't seem to specify the portion of the home that we rented out. What am I missing and how should I go about resolving this?

P.S. I am using the 'Do It Yourself - Premium' version of Turbo Tax which doesn't appear to be an option I can select for Product in this forum.

[Vanessa A]

It sounds like you may have missed a question in the beginning set up of the rental property.  After you go to the rental section, it will ask you about the house and address, then it will ask you what type of property it is then on the next screen it asks "Do any of these situations apply to this property?"  One of the options is, " I rent out part of my home", select that option and then you will be given questions asking about the percentage of your home that you rent out.

To get back to this section, select the following:

1. Income
2. Rental  
3. Rental Summary 
4. Property profile.  

[paulkeskeys]

Hi Vanessa,

Thank you for your reply. Unfortunately I can't seem to locate anywhere to input the percentage we rent out. I don't see "Property Profile" as an option after selecting Income > Rental > Rental Summary.

First screen I see:
First, I selected "Rented part of your home" and clicked Next.

Next screen I see:
Then, it asks for number of days rented vs. personal use days.

Final screen I see before it takes me back to the rental summary:

Then, it gives me this screen. When I click "Continue it takes me back to the summary page.

[paulkeskeys]

Do you have any remedy for this issue given the above?

[RobertB4444]

Yes!  When you get past the early entry part of the rental property you'll come to a screen with several options to enter data about the rental.  The fourth one down is "Assets/Depreciation" and you should click 'start' next to that.  

Once in there you will enter the value of your home and what percentage of it you are renting out.  At that point the system will be able to prorate expenses for the entire home as a percentage deduction for the year, taking into account the 33% ownership and the rental days.  These are called 'indirect expenses'.  

You will also need to enter 'direct expenses'.  These are expenses that are only for the rental (cleaning services, guest amenities, etc.).  Those aren't subject to the percentage.

[paulkeskeys]

Hi Robert,

Thank you for your reply. I'm sorry but I'm just not understanding - what you describe does not match up with what I see on screen. Here is the screenshot of the screen I see when I click on Assets and Expenses - I still don't see anywhere where I can add the % of the home I am renting out. Are you sure you are referring to the version of TurboTax that I am using?

[paulkeskeys]

I'm not sure if that screen is readable but I am urgently hoping to resolve this. To reiterate, where can I input the percentage of property used as a rental space? I am still unable to find this within the system.

Alternatively, can I input the numbers manually and do my own calculation?

For example, say the interest paid on the whole property is $50,000.

33% of the property was rented out for 150 days, which is 41% of the year.

Therefore, I believe the amount of interest to be expensed on Schedule E would be $50,000 x 0.41 x 0.33 = $6826.50.

Then, for the remaining interested to be reported on Schedule A would be $50,000 - $6826.50 = $43,173.50.

Is this correct and if so, can I manually input these numbers in Turbo Tax to get around my issue?

[AmyC]

Yes. When you rent out part of your home, you have a choice between letting the program do the math or you. You have done a great job for your basement rental that is 1/3 of your house. I prefer entering the expenses and the math is simple in your case at 1/3 for mortgage and property taxes along with maybe utilities, trash, etc. 

I want to address the 41% for time rented. If you held it out for rent and did not use the space for more days, it would still be a rental. It was not a rental when you were using it or when it was not listed for rent.

For example:  If you tried to rent it for 6 months but only had a tenant 150 days. It was a rental for 6 months as long as there was no personal use during that time.

[paulkeskeys]

Hi Amy,

Thank you for your reply and help! Since I can't get Turbo Tax to allow me to enter the percentage of our property we rented out, I will go the manual route in this case.

In terms of the 41% / 150 days rented, my understanding was that this should amount to the number of days that a property was rented out "at fair market rate" or some such. Are you saying it is actually the number of days it was offered for rent at fair market rate?

This would increase our no. of days slightly so in the spirit of accuracy I will factor this in if so.

[ThomasM125]

No, the days available for rent does not include days rented, per verbiage on IRS Pub 527, Page 25 and 26 Dividing Expenses. As it states on page 26  "any day that the unit is available for rent but not actually rented is not a day for rental use."

[paulkeskeys]

So to confirm, AmyC's advice above was incorrect?

[AnnetteB6]

No, AmyC's advice was not incorrect.  The distinction is whether you used the space for personal purposes or not during the time it was being advertised and/or rented.  If there was no personal use at all when it was being advertised and rented, then AmyC is correct.  

If there was personal use during the time it was being advertised and/or rented, then you should follow the advice referenced by ThomasM125.  The sections of IRS Publication 527 that he referenced are explaining how to determine rental days when the property in question is being used personally and being treated as a rental property during the same time period.

@paulkeskeys 

[paulkeskeys]

Thank you - so we should could un-rented, non-personal days as rental days? For example, there may have been three days between rentals where we cleaned the space and set it up for the next guest. The space was advertised for rent for these days but not actually rented, and was not used personally in that we did not spend time in the space other than to clean it.

I guess I'm struggling to see how we would prove the difference between personal use and un-rented rental days given that the rented space is part of our home and no one is actually seeing how we are using or not using that space in between rentals.

[AnnetteB6]

Yes, if you did not have personal use days mixed in with rental days (after the period of time when you started renting it), then you count occupied and non-occupied but advertised days as rental days.  Spending time cleaning the space does not count as personal use.

It is unlikely that you would need to prove that it was not used personally in between rental periods.  Just keep records for how long it was advertised and available for rent along with records of the periods of time it was actually rented.  

These days it is becoming more common for people to rent part of their home to get some extra income.  If the space is set up to be guest-ready at any time and it is being advertised on a continuous and ongoing basis versus being an area of your home that you are likely to use when it is not rented, then you should not need to worry.  The difference in reporting the expenses using one method or the other is not likely to be too significant, and unless you have some other reason for your return to be audited then no red flags should be raised either.  

@paulkeskeys