Converting rental home asset to personal use in TurboTax Business not possible?

[randy5419]

I’m using Turbotax business to file a return for my Mother’s estate, which includes a rental property.   I’ve successfully added the asset with acquisition date the date of my mom’s death and acquisition cost equal to the stepped-up basis value.   But the property was in service only until 10/1/23 when the home was vacated so that it could be prepared for sale.   The home sale took place in 2024, so for my 2023 return I need to let TurboTax know that the home was converted to personal use on 10/1/23.   But I am not offered that option.  The only option I’m given for taking the home out of service on 10/1 is to sell the home.  

I did not have this problem in TurboTax Deluxe, which I used to file my Mom’s 2023 1040 return.   I was able to convert the home to personal use on her death date.  

Any suggestions would be appreciated.

[KrisD15]

The way I understand this is

your mom had a rental

she passed and you reported that the rental was converted to personal use on her return

You inherited the property and continued the rental until Oct 2023

You sold the property in 2024 

Set up the rental in your TurboTax program

On the "Tell Us More About This Rental Asset" screen select 

I purchased this asset

The item was sold, retired, stolen, destroyed, disposed of, converted to personal use..."

Date it was retired from rental

"Yes, I've always used this item 100% of the time for business"

Continue

Select YES for the "Special Handling Required?" screen since you will not report the sale until you do your 2024 tax year return. 

DONE 

Go back to Rental Income and claim the rent you received for 2023.

Go back to rental Expenses and claim the expenses while it was an active rental.

You will also have a small amount of depreciation for 2023.

When you do your 2024 tax year return, you will report the sale of this property under 

Less Common Business Situations

Sale of Business Property   START

The reason for this is that you will need to claim the depreciation allowed for the short time you rented it in 2023 as Ordinary Income when you sell the property, (unless the depreciation is lost)

So, if the stepped up value was 500,000 when inherited and you received 5,000 depreciation in 2023, you'll enter that 5,000 as depreciation taken on the property. this can't be done if the sale is reported in the "investment" section.

Also, be sure to enter the date your mother purchased the property as the date you acquired it. Capital Gain is treated as long-term for inherited property, but that option (to report that it was inherited) is not available in the Business section.

You don't have a choice about the depreciation, if it was a rental for any time that you owned it, you are required to recapture what was, or should have been, taken.

If you made significant improvements, add that to the stepped-up basis.

Enter the selling costs, such as commissions. 

You should end up having to claim at least some of the depreciation recapture (Schedule 1) and perhaps a long-term capital loss 

OR

If you end up with a long-term capital gain, you will need to claim all the depreciation recapture. 

Entering the sale in the Business section will put what you need to claim on the correct forms. 

You'll need to know what depreciation was claimed in 2023 when you file 2024, so keep a copy of Schedule E and your depreciation report for next year. 

[randy5419]

Thanks for your reply.   The home went to my Mom's estate, was operated by the Estate as a rental for part of 2023, and was sold by the Estate in 2024.   No distributions have yet been made to benficiaries.

An Estate Tax Return must be done with TurboTax Business (1041 Return).  The procedure you describe works in TurboTax Deluxe (which I used to do my Mom's 2023 return for the part of the year she was alive), but I find it does not work in TurboTax Business (the screens you describe are not offered).  Do you have experience doing this with TurboTax Business?

[randy5419 · Accepted solution]

I was able to get TurboTax business to work as I wanted by editing the forms to accord with what TurboTax Deluxe did in a like situation.