Tax Question - Prorating due to change from primary residence to rental income

We own a condo in Atlanta that was our primary residence from the day we bought it in May 2007 to the day we moved to Sacramento, 26 September 2008. At that time we put it on the rental market, and have had a tenant since the end of October. We stayed at a hotel until 5 October before finding a permanent place to rent in Sacramento.

I plan on using TurboTax to do my taxes, but I understand that I need to break down my mortgage interest and property tax deductions into a section for when it was my primary residence, and a different section for when it was a rental property, as the deductions for the rental can only be applied against the passive rental income. In addition I can deduct the HOA payments, but only while it was a rental.

What is the correct way to prorate all these expenses? I’ve thought of taking 26 September as the cutoff point between primary residence and rental, so for whatever deductions are appropriate for the primary residence I’ll take the yearly figure and times by 270/366, and for whatever deductions are appropriate for the rental I’ll take the yearly figure and times by 96/366. Is this correct? It seems the most “scientific” way to do it, although I’d pay less tax the more I split the deductions in favor of primary residence versus rental.

I obviously want to do this 100% correctly, but I’d hate to do it in a way that I pay more tax than I legally have to. So what is the correct mathematical way to prorate this?

I am going to bump this question one time.

So far I have looked at the last day we lived in the property and divided the year into days-we-lived-there and days-it-was-on-the-rental-market. So if the first 200 days were primary residence then the last 166 were rental, and I am dividing the annual costs accordingly. Does that sound right?

“Any day that the unit is available for rent but not actually rented is not a day of rental use.”


Actually I do not think that section applies to me: I think that is for people who use a place partly as a rental and partly as a dwelling. I switched from a 100% primary residence to a 100% rental. The relevent section for me is here.

The example answers my question:

“Your tax year is the calendar year. You moved from your home in May and started renting it out on June 1. You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance.”

It actually doesn’t look like it matters if I start the rental clock when it was available for rent or when it was actually rented - either way the rental is a net loss for me and I am restricted from deducting the loss anyway. I guess as long as I stop the primary residence clock when we actually moved out …

I’m glad I am not the subject of senate confirmation hearings!

Ah I see, glad it works out. Note that you can carry forward your loss to subsequent years.