How to allocate 2022 property tax and interest when it comes to partial primary home and partial rental?

[gshforever]

First-time rental in 2022:

• Primary home from Jan to Aug 2022
• Rental from Sep to Dec 2022

Question: How to allocate 2022 property tax and interest to the cost of Rental Properties and Royalties (Sch E) vs normal property tax and interest (deduction part, which could impact state tax return)? By days?

Thanks

[Mike9241]

the tax court method for those specific items days rented to days in the year. other expenses like maintenance and  utilities days rented to days occupied.  the second allocation that is required when part of the property is personal use is area rented to area in the home but excluded from area rented are portions with personal use such as the family room or kitchen  TC Memo 2006-33 

[AnnetteB6]

Yes, you would either allocate it by months or by days.  Then, claim the personal portion on Schedule A and the rental portion on Schedule E.

Since it appears you converted your personal residence to a rental property, be sure to check that box when you are entering the details for your rental property.  Also, be aware that you should not include any 'personal' days for the property after the time it was converted to a rental.  The period of time you lived in it prior to converting it to a rental do not count as personal days since it was not yet a rental property.

@gshforever 

[gshforever]

Thanks. @AnnetteB6 would you explain why “The period of time you lived in it prior to converting it to a rental do not count as personal days since it was not yet a rental property.” ? Shouldn’t it count as personal days? Confused.

To make it easier, let’s say the whole year interest is 6000 and the whole year property tax is also 6000. It’s my primary home for the first 9 month until 2022.9.30 and rented it out from 2022.10.01 until the end. I moved in to my new primary home at the same time on 2022.10.01.  Can I say the follow:

• Claim 4500 interest and 4500 property tax as personal (deduction and credit part) in Schedule A. Also, I can add on the new primary home’s interest and property tax here for 2022, right?
• Claim 1500 interest and 1500 property tax as expense in Schedule E.

In Schedule E, when I provided the rental date and whole year interest and tax, I see TurboTax automatically calculates the percentage portion which belongs to rental. Does it mean it at the same time automatically adjusts the portion belong to Schedule A? I provided the same full year interest and property tax when filling schedule A. Or should I manually reduce the interest and tax belong to Schedule A? This is something I’m not sure.

Thanks a lot.

[AnnetteB6]

With respect to personal use days of a rental property, you only consider the time it was used as your personal residence after it was converted to a rental property.  Up to the date it was converted, it was simply your personal residence.  TurboTax should give you a reminder on the screen to not enter any personal use days for the period of time prior to converting the property to a rental.

The personal use days is confusing when you have converted your personal residence to a rental.  However, the question only applies to any time period after the date of conversion.  It is more applicable to the situation where you have a vacation rental that is being used for personal purposes for a few days and being rented other parts of the year.

If you enter personal use days prior to the date the property was converted to a rental property, then your expenses will not be prorated correctly.  

Your calculation example above is correct for your scenario.  Also, your new primary home may also be added to Schedule A itemized deductions.

When you go back through the Rental Income and Expenses section to remove any personal days you entered, then the amounts automatically prorated between Schedule E and Schedule A may change.  Pay close attention to the messaging on the screen for guidance about whether to enter the full amount in Schedule E or just the portion for the time the property was a rental.  Then, do the same when you get to Schedule A entries.  If an amount has been reported in Schedule E, it is generally shown on the screen so that you will not duplicate the entry.

@gshforever