We rented out our condo for more than 10 years, starting shortly after its purchase. It has never been used as a “vacation home” but instead 100% as an income producing rental property. Our final tenant left at the end of February 2023. That tenant caused a lot of damage. We retained most of the security deposit to cover the damage, but it took a couple of months after the tenant left to complete the repairs. Due to the damage and adverse changes in rent control laws, we ended up deciding not to rent the condo again, but instead will use it as a second home.
Several questions:
1. What date would be the appropriate date to convert the unit to personal use (March 1, 2023, or July 1, 2023, the date on which the repairs were completed)?
2. If we are required to convert the unit to personal use on the earlier date (March 1), is there a way to ensure that the expenses that were paid for using the security deposit (which the IRS appears to consider to be rent) can still be included on Schedule E to offset that “rent”, even if the service providers were not paid until after March 1?
3. Since this unit is being permanently converted to “personal use” as a home (and not a main home), for purposes of Part I, item 2 of Schedule E, should we indicate that there are 60 rental days and zero (0) personal days, and then include in our Schedule E expense entries only expenses (such as monthly HOA fee, repairs, pro-rated months of insurance, pro-rated months of property taxes) applicable to the period prior to the conversion date and exclude all expenses after the conversion date?
4. Would we then include property taxes for subsequent months in the Schedule A itemized deduction calculation, with other formerly rental expense items no longer being deductions for periods after the conversion date? (We don't have a mortgage.)
5. NOTE: The approach in items 3 & 4 is based on guidance in TurboTax discussion entitled “Schedule E for a partial-year rental property: how to force TurboTax to allocate 100% of expenses to rental (and none to personal use)” located at https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/schedule-e-for-a-part.... Would like to confirm that the ultimate response allowing manual allocation of entries between Schedule E and Schedule A is still valid.
