15durango
New Member

Can I take rental property assets out of service on the tax return in the asset section of TT in order to stop depreciation? .

Property has been rented for many years and was rented in 2017 through June 30. Property it to be sold in the future with contiguous real estate. Property has never been used as personal property.

PatriciaV
Employee Tax Expert

Investors & landlords

Yes, you may report partial year depreciation on a Rental Property that was not rented all year

While you won't report that it was sold or disposed of, by entering only the actual number of rental days, you will receive only a partial year of depreciation. You will find this question on the page "Was This Property Rented for All of 20XX?" during the rental property interview.

Next year, you will report that it was not rented at all during the year. This will remove Schedule E for that property from your return. Be sure you save all the worksheets and forms from the year it was last rented, as you will need that information when you finally sell the property.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

Investors & landlords

A room in our house was rented for the first 60 of the 365 days last year (we were just helping someone out).  

Do I enter expenses for the whole year and then TurboTax fractions out the expenses?  It seems that I should only enter expenses (utilities, repairs, taxes, interest, etc.) for the time it was rented out, but the interview includes a statement to the effect that enter the taxes (or interest??) and TurboTax will figure it out.

Carl
Level 15

Investors & landlords

This will remove Schedule E for that property from your return.

No, it will not remove the SCH E from your 2019 tax return. The only option that will *force* you to *incorrectly* remove the SCH E from your tax return, is if you select the option for "I did not rent or attempt to rent this property at all in 2019". If you select that option and remove the SCH E from your 2019 tax return, *you* *are* *screwed*.

If you maintained the SCH E on your 2018 return and it was transferred to your 2019 return, the simplest thing to do is to show you converted it to personal use on 1/1/2019 and removed the assets from service on that same date. Of course, you won't be able to claim jack squat for rental expenses, and that would in fact, be the correct thing to do.

But the "real" correct way to do this is to amend your 2017 tax return and show the conversion to personal use as starting the first day *after* the last renter moved out. That will be the same date you will use in the assets section to stop depreciation.

If done correctly, your 2017 property taxes and mortgage interest will be split between the SCH E for the period of time it was a rental, and SCH A for the period of time it was personal use. Your property insurance paid in 2017 will have to be manually pro-rated by you so you claim on the SCH E only the amount for the period of time it was a rental.  Insurance for the period of time it was not a rental is flat out not deductible anywhere on the tax return.

All other rental expenses can only be claimed up to the date of conversion to personal use.

Investors & landlords

I was wondering this about commercial properties in Turbotax business.  With a residential rental property, if it is no longer for rent but is for sale, you mark them out of service to stop the depreciation.  Is the same true for commercial properties where there's no "personal use"?  

Carl
Level 15

Investors & landlords

Once you take a rental property out of service, be it commercial or residential, in addition to stopping depreciation, it also means you can not take any rental expenses incurred after the date you take it out of service. That includes mortgage interest and property taxes. The property insurance deduction also stops. It's no different for commercial property than it is for residential property.

Now some (not all) expenses incurred after converting it to personal use "might" be sales expenses or carrying costs that are reported/claimed as a part of the sale. But things like routine maintenance (yard care, cleaning, etc.) are not carrying costs of the such. This is because those are expenses you would be expected to incur regardless of the classification of the property.

Now things might be different for an S-Corp or C-Corp that owns the property. But I don't know enough about those types of businesses to comment.