Question

Renting a new home after a period of personal use.

Forum|Forum|3 years ago
January 12, 2023
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I closed on a new house on 2/28/22, and lived there through 6/30/22. I tried to find a tenant for July 2022 through June 2023, but ended up renting it from 7/28/22 - 5/31/23. The house will be listed and available for rent for June of 2023, and I will move back in on 7/1/23. What expenses can I deduct in 2022? 2023? Do I allocate expenses to the personal use period and rental period based days of each type of use? How do I treat vacancies? Thank you!

ItsDeductible Online

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Vanessa A

Yes, you will allocate expenses based on the days of each type of use. As you walk through TurboTax, it will ask you when you purchased the property, if you converted it from personal use to a rental property, how much you paid, how many days you rented it out, and how many days you lived in it. Then TurboTax will do the allocation based on the days you live there vs rented.

You will claim the expenses and income for the property on your 2022 taxes for July 28 through December 31.

From July 1st to July 28th, you can only deduct expenses if the property was available and ready for renting. Meaning if the property was available for the tenant to move in on July 1st, you may be able to deduct carrying costs such as utilities. If the property was not ready for the tenant on July 1st, the expenses incurred during that period of time would not be deductible rental expenses.

You cannot claim any of the expenses during the time you lived there.

However, if you made improvements to the house during the time you lived there, like putting on a new roof, new cabinets, etc., you will include that in the cost basis of your house to depreciate during the rental period.

The same will apply for 2023. While you are living there, no part of the cost will be deductible.

This link will give you more detail on what you can and cannot add to your cost basis.

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smilgrom79Author

Thank you very much! To make sure I understand you correctly, for presently deductible items such as repairs and maintenance and utilities (as opposed to items of depreciation), it does not matter when the expense occurs. All such expenses for the year are added up and the total is multiplied by the ratio of rental/available for rent days to total use days. Is that correct? Thanks again.

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Vanessa A

When you start as personal use then convert to a rental, you will not count your expenses prior to the time the property was available for rent. If you use the property for personal use while it is a rental property, then the expenses are allocated.

For example. You did a month to month lease with your tenant, they rent it from January to May. You then move in from May to June, then rent it again from July to December. In this scenario you would include all of your expenses as you are using your rental property for personal use.

However, in your situation, you would not include the time prior to renting the property as personal use and therefore would not include the expenses for that period of time. You would only include the expenses for the time it was considered a rental property.

The same will apply if you convert it back to personal use. You will include the expenses for only the time that it is a rental property. If you use it for personal use prior to converting it back, you will then need to enter the number of days it was used for personal use and the expenses during that period. TurboTax will then allocate accordingly.

Basically, the expenses are allocated during mixed use periods, but not before or after fully converting.

@smilgrom79

(Edited 1/12/2023 @3:49PM PST)

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