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Question

Re: What is the correct way to enter rental income on a home you own? Should all rent be included...

Forum|Forum|3 years ago
April 1, 2023
2 replies
0 views

I rented out my primary home for few months in 2022 (50% of 2022) as I traveled. I entered all amounts in schedule E for rent received, mortgage interest, insurance, repairs, property tax, condo fees and special assessments. Under assets rental property I stated I used the primary residence for business/rental for 50% of 2022 and purchased in 2015. It was rented 100% of the time from 2015- 2020 and then became a primary residence end of 2020 on to 2022 except 6 months in 2022 when it was used as rental again.

Turbo Tax is not taking into account out all my $ entries under "EXPENSES / ASSETS (DEPRECIATION)" and is showing my net income for the primary residence rental as rent received minus the depreciation. It put a $1 value for my insurance, cleaning/maintenance and mortgage interest totaling $3. It shows real estate taxes and repairs lines as "not started" but when I click on 'start', it shows the amounts I had input.

Why is it zeroing out my real estate taxes and repairs line amounts and assigning $1 value to insurance premium, cleaning/maintenance and mortgage interest lines?

PatriciaV

Employee

You may need to review your entries under the Property Profile and the rental expense/assets sections.

Did you report that you converted your home to a rental? In this case, you enter expenses for the time it was used as a rental under the Rental Property section (allocation to personal use is covered later under Deductions & Credits).

Did you report that the property was not rented all year? Did you enter the correct number of days rented? Personal use days for this question are for the months the property was rented (not the time you lived there).

Did you enter the full amount for your rental expenses? Mortgage interest and property taxes entered 100% here are allocated by TurboTax to Your Home under Deductions & Credits.

Did you enter 100% business use for the residential rental asset? TurboTax knows the property was rented only half the year, but the residence should have been used 100% as a rental during those six months. You should enter all prior depreciation taken during the time it was used as a rental in the past (from your personal records).

Correcting these entries may solve your income/expenses calculations.

@bjmt

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bjmtAuthor

@PatriciaV

1. Yes I reported I converted home to a rental.

2. Yes, I reported it was not rented all year.

3. Yes, I entered full amount of my expenses in the rental part of "wages and income"

4. For the six months it was rented, it was used 100% rental business. It is using exactly 50% of my annual depreciation.

I rented the primary residence out for exactly 185 days and lived in it for 180 days which is what I input. It looks like TurboTax has applied 50% of my mortgage interest and 50% of my property taxes under "Deductions and Credits". However, it is not applying 50% of my maintenance, repairs, cleaning expenses to the rental deductions. Instead it is only deducting the 50%annual depreciation from rental income.

Under property profile of rental asset I clicked on "No, I have not always used this item 100% of the time for this business." and "I first used this item at least part of the time for this business, and also used it for personal purposes."

Date I started using it in this business: 10/01/2015

Percentage of time I used this item for this business in 2022 (e.g., 80%): 50

Is this not right?

Carl11_2

Employee

A few things need further clarification.

purchased in 2015. It was rented 100% of the time from 2015- 2020

So the property was purchased and immediately placed in service as a rental. You never lived in the property until you converted it to personal use on your 2020 tax return. Or did you convert it to personal use on your 2021 tax return?

After you identify the tax year you converted the property to personal use, you will need some documents from that tax year.

- Two form 4562's that print in landscape format. One is titled "Depreciation and Amortization Report" and the other is titled "Alternative Minimum Tax Report".

- IRS Form 8582-Passive Activity Loss Limitations.

then became a primary residence end of 2020 on to 2022 except 6 months in 2022 when it was used as rental again.

What month did you convert the property back to a rental? Did the property remain classified as a rental for the remainder of the tax year and into 2023? Is the property still classified as a rental today in 2023? This matters big time. It also matters what you used as a cost basis for depreciation on the 2022 return, as it will "NOT" be the same cost basis you used originally for the first time it was a rental.

bjmtAuthor

@Carl11_2

Property was converted as primary residence in April 2020. In 2022, property was converted back to a rental in May 2022 and back to a primary residence in Nov 2022.

I looked up the depreciation amounts that was reported in tax years 2015-2019 when it was 100% of the year used as rental, and input that amount in TurboTax where it asked for prior years depreciation.

In 2022,I rented the primary residence out for exactly 185 days and lived in it for 180 days which is what I input. It looks like TurboTax has applied 50% of my mortgage interest and 50% of my property taxes under "Deductions and Credits". However, it is not applying 50% of my maintenance, repairs, cleaning expenses to the rental deductions. Instead it is only deducting the 50% of the annual depreciation from the rental income.

Date I started using it in this business: 10/01/2015

Percentage of time I used this item for this business in 2022 (e.g., 80%): 50

Is this not right?

Carl11_2

Employee

You've made a number of errors here. Most are because you've not been provided the clarity needed, and one because you didn't read the small print. Easy to fix. Just be aware the program can't handle everything correctly, meaning you have to do some things manually yourself. For this, you will need the 4562's from the 2020 return, since that's the last return you reported this property on SCH E. (The year you converted to personal use)

When you convert the property from personal use to rental for a second time, depreciation starts over from year 1, using a new adjusted cost basis that takes into account depreciation taken before this 2nd conversion to a rental. You have to reduce the cost basis by the total amount of all depreciation taken in the past, then depreciate from year 1 using that new, lower cost basis. Basically, subtract the total depreciation taken in the past, from the original cost basis used in the past. That will be your new cost basis for the 2022 tax return. What you enter in the COST and COST OF LAND boxes matters on the 2022 tax return.

COST: this will be the original cost basis, minus the total of all prior depreciation taken.

COST OF LAND: This will be exactly the same as entered back in 2015, as land is never depreciated.

It's up to you to keep track of the prior depreciation taken before 2022, as you will need to report and recapture it if/when you sell or otherwise dispose of the property in the future. The program has no way to "know" about the depreciation you took between 2015-2020

If the 8582 is present in the 2020 return, you'll need that to claim/show your PAL carry over losses.

When asked, the property was rented "THE WHOLE YEAR". The program (not you) will figure that first year depreciation based on your "in-service" date.

The property was 100% (ONE HUNDRED PERCENT) business use with ZERO personal use days, and was rented "the whole year". What you used the property for before you converted it to a rental does not count for anything, anywhere on your tax return.

The program (not you) will prorate only the mortgage interest and property taxes between SCH A for the period of time it was your residence, and SCH E for the period of time it was a rental. You *do not* have to enter anything under the Deductions and Credits tab in the Your Home section for mortgage interest and property taxes. If you'll read the small print on that screen, it will (should) tell you an amount is already account for.

The one and only thing you need to pro-rate is property insurance. A percentage of the property insurance paid in 2022 equal to the percentage of time it was classified as a rental, is deductible on the SCH E. The remainder is not deductible anywhere, as property insurance for the period of time it was your residence is just flat out not deductible at all.

For other rental expenses, you only enter those expenses incurred *AFTER* the property was converted to a rental, and they are 100% deductible on the SCH E. Expenses incurred before the property was converted to a rental are just flat out not deductible at all.

Now if you did any property improvements during the time it was your residence, let me know. Property improvements are not handled the same as other costs and expenses, and it does not matter if the property was your residence or a rental at the time the property improvement was done.