Confused by Tax Return - moved from owner/occupied Multi to SFH

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Confused by Tax Return - moved from owner/occupied Multi to SFH

Robert Kohnfelder
Rental Property Investor · Pittsburgh, PA · Member since 2019 · 38 posts · 13 votes

Last year's online tax return (turbo tax) was fairly simple from what I recall, as I had no major confusion selecting that I lived in the property and also rented it out. This time around, I can't find a clear-cut choice to select when describing the rental property I no longer live in. I lived in it for about half of 2019, but did not end the year living there. I tried using TurboTax again as well as H&R Block this year, and I've run into the same roadblock on both sites. My options are basically as follows:

  • -It's a spare room I rent out in my home.
  • -It's multi-family housing and I live in one unit.
  • -It's property that changed from being my main home to a rental in 2019.
  • -It's rental property I (or my family) used personally for one or more days in 2019.

The third option makes the most sense, but then it goes on to ask how many days I used the property for "Personal Use", which doesn't seem quite right to me (but as a tax novice, I could be totally wrong here). Is this a correct option? Should I go get my taxes done by a pro? I'm really just looking to do this the right way, but would like to learn for myself and for the future -- even if it means sitting down with a pro this year.

Any advice/opinion is much appreciated. Thanks!

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  • Bill HamptonBusiness Member
    Accredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 977 votes
    6y

    @Robert Kohnfelder

    Time to get professional accountant. There is more involved than selecting an option. 

    Good luck and let me know if you have any questions. 

    404-482-3170
    Hampton Tax and Financial Services LLC4.7106 Reviews
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  • Glenna Wood
    So MD · Member since 2019 · 294 posts · 191 votes
    6y

    If you go with Turbo Tax on this then one approach is to treat your multi family as two properties that happen to share a wall and apply the rules for each case. One unit has mixed personal and rental use in 2019 and the rest is 100% rental. Report the property as multiple schedule E entries in TurboTax, unit 1 where you lived part of the year and then unit 2 or 2/3/4 for the 100% rented part. "Personal Use" is the amount of time you lived in unit 1. Then enter the correct prorated taxes, basis, interest, expenses, etc for each part of your property. Running the numbers yourself in TT will prepare you for working more efficiently with a pro to review and bless it before hitting the "send" button. Good luck! 

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  • Robert Kohnfelder
    OP
    Rental Property Investor · Pittsburgh, PA · Member since 2019 · 38 posts · 13 votes
    6y

    @Glenna Wood this is an interesting idea... So if I went this route, would I be better off claiming each of the units as "multi-family" or "single family" properties? Does that matter? And when given the option to enter "personal use", would that just be the amount of days I lived in the unit and did *not* rent it out? 

    Thanks in advance!

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  • Glenna Wood
    So MD · Member since 2019 · 294 posts · 191 votes
    6y

    Not so much that you are better off it's that TTax simply can't figure it out unless you split the property into 100% rental versus partial rental in order to properly account for the personal use time. TTax doesn't care if you call a unit single family or multifamily.  Example, if you used unit 1 for 9 months as your home then 9/12ths or 75% is "personal use" on unit 1. Let's say you have a duplex, units 1 and 2. You lived in 1 for 9 months. Your 2019 property tax is $4000 on the duplex. Divide that by 2 units. For the rental side, 100% of the prorated tax ($2000) goes to schedule E for that part of the duplex (unit 2). The remainder of the  $2000 for property tax goes to unit 1 with 75% to schedule A (it was your home) and 25% to unit 2 on schedule E for its 3 months as a rental. Figure this out using the appropriate rules (like no utilities are deductable on unit 1 while you lived there) for each unit for all categories of expenses and prorate as needed. Depreciation will need to be prorated. Turbo Tax will carry these nitty  details from year to year for you. But realize that you are making a commitment to that software from hence forth. And get very serious about saving PDFs of your return and keeping multiple back ups. If this all doesn't make sense, get a pro (which is not me). Good luck! 😎

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  • Robert Kohnfelder
    OP
    Rental Property Investor · Pittsburgh, PA · Member since 2019 · 38 posts · 13 votes
    6y

    @Glenna Wood that is all very helpful information... and another question, if I bought the property with my girlfriend and her name is on it as well as mine, would we be further dividing up (in half?) all of the percentages you mentioned above, plus the rental income we received? Is this something that is necessary or just a preference based on tax return amount? As you can tell, this is all very new and confusing haha... Any input is appreciated!

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  • Glenna Wood
    So MD · Member since 2019 · 294 posts · 191 votes
    6y

    Okaaaayyy here's "any input"....  If you are 50/50 owners/investors then I would GUESS that you would take all the final numbers and divide in half to split across your own schedule Es in each of your own tax returns. TTax allows multiple returns.

    I'm headed to the bench now as you've exceeded my risk tolerance and street knowledge since I would rather pull out my eyebrows than co-own real property with a unrelated party without a multi member LLC or a partnership with a CPA and attorney already in tow... Good luck!

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