Property That is Changed to Rental Use

If you own some property and decide to start renting it out, there are a few things you should note for tax purposes.  If you change your home or other property to rental use at any time during the year, then you  must divide the expenses, such as taxes and insurance, between rental and personal use. 

For example, if you start renting your home out on July 1st, then for the year, 50% of all expenses will be deductible on Schedule E to offset rental income.  Examples of the expenses would be mortgage interest, taxes, cleaning and maintenance, and utilties.  For the 1st half of the year only mortgage interest and taxes would be deductible and would go on Schedule A of your tax return.

For depreciation purposes you should use the conversion date as the date the property was placed in service.  So in the above example on the depreciation schedule you would list July 1st as the date placed in service.  The first half of the year would not be depreciable for tax purposes since it was used personally. 

The big thing to note is that once you convert the property to rental use you need to start tracking expenses as of the conversion date to make sure you are recording all your expenses for tax purposes.


About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has owned his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.