Expenses for Partial Year Rental Property
In 2024, I had a property that we lived in for January and February, then rented out starting 3/1/2024 through the end of the year. Thus, I figured I had 60 days of personal use of the property and 306 days of rental use, about 83.6% rental use.
My question concerns the allocation of expenses for the rental property between personal use and rental use. I noticed that FreeTaxUSA says that it will allocate several rental expense categories between personal and rental use based on that rental use percentage: cleaning & maintenance, insurance, mortgage interest paid to banks, repairs, supplies, real estate taxes, utilities, and other interest paid.
For example, I am wondering about necessary repairs that were performed later in 2024 while the house was being rented. I'm thinking these expenses shouldn't be prorated at all, since they were incurred entirely while the house was a rental. If I wanted the software to account for the full amount of those repairs, what would be the best way to go about that?
Answers
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Hi bknaus,
Once the property was converted to rental use, all expenses were 100% deductible. So you would just enter these expenses at 100% during the rental period. See Publication 527 for more details.
Up until that point, any improvements of lasting value became part of the basis from which depreciation began when you started renting 3/1/2024. Repairs you made simply keep the house in good working order and don't increase basis.
In FreeTaxUSA software you also have the option of indicating 100% business use for the time of rental and then manually applying 83.6% to the appropriate expenses for the time period and entering each of those costs. You may then enter 100% for the cost of repairs during the rental. If some costs overlap or apply to the same category, it'll be the 100% added to the 83.6% portion for one number entered in the associated expense.
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