Do i need to prorate deductions on a rental property I converted mid year?

Forum|Forum|6 years ago
June 4, 2019
2 replies
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I started renting my condo in April. I'm wondering if I should deduct the entire year's property tax, depreciation, condo insurance, or if I just enter the entire year's value of these things. Thanks!

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Best answer by ChelsiE2

Yes, you should prorate the amounts between Schedule A (for the time you lived there) and Schedule E (for the time you rented it out).

When you enter the date that condo became a rental in TurboTax, the depreciation will be automatically calculated only for the time you rented it.

For all other expenses, you can prorate as follows:

Example: Let's say that you lived in your home Jan 1 - Mar 31 (3 months) and rented it Apr 1 - Dec 31 (9 months). Let's also say that you had Mortgage Interest of $5,000, Real Estate Taxes of $2,000 and Home Owners Insurance of $500. These costs would be allocated as follows:

Schedule A:

Mortgage Interest = (3 / 12) x $5,000 = $1,250
Real Estate Taxes = (3 / 12) x $2,000 = $500
Home Owners Insurance = $0 (not deductible for personal use property)

Schedule E:

Mortgage Interest = (9 / 12) x $5,000 = $3,750
Real Estate Taxes = (9 / 12) x $2,000 = $1,500
Home Owners Insurance = (9 / 12) x $500 = $375

Please note: for the time you lived there, you'd only be able to deduct the applicable Mortgage Interest and Real Estate Taxes. You would not be able to deduct that portion of depreciation or condo insurance.

ChelsiE2Answer

Employee

Yes, you should prorate the amounts between Schedule A (for the time you lived there) and Schedule E (for the time you rented it out).

When you enter the date that condo became a rental in TurboTax, the depreciation will be automatically calculated only for the time you rented it.

For all other expenses, you can prorate as follows:

Schedule A:

Mortgage Interest = (3 / 12) x $5,000 = $1,250
Real Estate Taxes = (3 / 12) x $2,000 = $500
Home Owners Insurance = $0 (not deductible for personal use property)

Schedule E:

Mortgage Interest = (9 / 12) x $5,000 = $3,750
Real Estate Taxes = (9 / 12) x $2,000 = $1,500
Home Owners Insurance = (9 / 12) x $500 = $375

jeff-issenberg

Re "When you enter the date that condo became a rental in TurboTax, the depreciation will be automatically calculated only for the time you rented it." I don't see TT prorating the Mortgage Interest or the Real Estate Taxes on my Schedule E. I entered the full amount and I see the full amount on Schedule E. Is there somewhere on Schedule E that it is prorating and I just don't see it? Or do I need to do the protrating of the Real Estate Taxes myself when I enter on the Enter Common Expenses TT page. On the Report Mortgage Interest TT page it says "Enter the rental portion of mortgage interest reported to you on Form 1098. We'll ask you to enter your personal portion later."

Carl11_2

Employee

While you have the option to "let TurboTax do it for you", I don't recommend it. That's because there are some things that can't be prorated correctly or at all by the program.

For your typical rental expenses such as repairs, maint, advertising, etc, you only enter costs incurred after converting it to a rental. Now while the program will prorate the property taxes and mortgage insurance, it seems to have difficulty with the property insurance. That's because property insurance is not a SCH A itemized deduction and never has been. So you pro-rate the property insurance for the rental time only.