Deductions & credits
Yes you must fill out the rental asset section. When your home was converted to a rental property you enter the asset as follows.
- Use the original cost plus purchase costs from your original settlement statement, then add all costs for any capital improvements.
- Next check the fair market value of your rental home for your area.
- You must use the lower of actual cost in 1. above or the FMV whichever is less for the asset cost when a home is converted from personal use to rental use.
- Figure out how much of the cost was land value (use your county or city property tax assessment to find the percentage of land then multiply that by the cost calculated in 1. above.
You will be asked to enter the full cost and then the land value, the date acquired and the date you placed it in service for rental purposes. Be sure to select that you converted this property from personal use to rental use. DO NOT enter any personal use days. Instead, you will select it was rented all year and at fair rental value (if you are not renting to a relative for a lower amount of rent than would be expected in your area).
As far as repairs, cleaning, etc., after it was converted, all expenses to maintain the property are deductible after the date placed in service, as long as it was available for rent. As you indicated, you must prorate the real estate taxes and the mortgage interest and insurance.
When you are in the rental activity for 2022, you must select the 'Assets' section, then in each asset you must go to the screen titled 'Tell Us More About This Rental Asset'.
- Once you reach this screen for each asset, you must select 'This item was sold, retired, stolen, destroyed, disposed of, converted to personal use....'
- Next enter the date you stopped using the asset for rental purposes. And answer 'Yes' you always used this asset 100% of the time for business. (The percentage of use doesn't change until after conversion from rental to personal use.)
- Select 'Yes' for Special Handling due to 'You converted the asset to 100% personal use'.
You may see some depreciation expense which will be the partial year amount. For the period of the year it was available for rent, you may have some expenses which are allowed for that open period.
Keep all of these records because you will need them when and if you sell this home. All depreciation will be recaptured at that time, regardless of how long you hold the property for personal use. The records are necessary until you completely dispose of or sell the property.
