Investors & landlords

I'm going to point some things out a didn't make you aware of before, and in the process it will answer your additional questions. I failed to make you aware of my reasoning for having you do things the way I suggested. So in explaining my reasoning, it will answer your questions.

so the original property depreciation stopped on 10/1/2019.

Right. Any expenses incurred after that date are "NOT" deductible as a rental expense. Key wrods here - "AS A RENTAL EXPENSE". 

So if you are keeping the utilities on after 10/1/2019 (electric, water, etc.) the bill you recieve "after" 10/1/2019 is not a rental expense and can not be claimed as such on the SCH E. However, with the property sold in 2020 it's what's called a "carrying cost". I.e.; your costs of maintaining the property in a salable condition after the last renter moved out, and it was converted to personal use. I really don't want to go into "carrying costs" right now, because these costs will not be dealt with until you file your 2020 tax return next year. Note that it *does* *not* *matter* that some of your carrying costs were incurred in a prior tax year either. You'll still claim/report them on the 2020 tax return as "a part of" your sales expenses. 

I also follow your instruction to add the home renovation cost as an asset, and put in 12/31/2019 as the start using date.

Great. What that does is "guarantee" the property will be imported on SCH E when you start your 2020 tax return next year. We want this to happen because it's less work on the brain for you to report this sale in the SCH E section of the program, instead of in the "Sale of Business Property" section. When you start your 2020 taxes next year using TurboTax 2020, as far as the software is concerned, you still have an "in service" and active asset on that rental property. So that will "force" the program to import it. After you import it to the 2020 program, you'll show all remaining active "in service" assets as converted to personal use on 1/1/2020. Most likely because it was in service for basically 1-2 days, no depreciation will be taken. But if there is, it's only going to be a few bucks and it will make absolutely no difference to your 2020 tax liability. Not a penny. (Unless of course, it's a multi-million dollar asset or something like that of astronomical cost)

Then you'll go through the process of reporting this sale in the SCH E section on your 2020 taxes, in the SCH E section of the 2020 program.

when I file the tax return for 2020, I am going to say this rental property has been sold, since it was vacant since 10/1/2019 until 2/21/2020,

That's exactly what you're going to do.

will I still be able to report all the expenses(utility, tax, mortgage interest etc) ?

Expenses incurred and paid between 10/1/2019 and 2/21/2020 will not be claimed or reported as rental expenses - because they're not rental expenses. They will be claimed as carrying costs and included as a part of your sales expenses.

Now technically speaking, the mortgage interest and property taxes are going to be pro-rated on the 2019 tax return and split between the SCH E for the period 1/1/2019 to 10/1/2019 when the property was a rental, and 10/2/2019 thru 12/31/2019 on the SCH A for the period of time it was personal use. So those items on the SCH A of the 2019 return can not be claimed as any type of sales expeneses or carrying costs.

But if you'll take a look at your closing statement on the sale (Form HUD-1 by any chance?) you'll see where you paid a prorated portion of the property taxes for the period of time you owned it in 2020 before the closing date. That amount is added to your cost basis in the property, thus reducing your taxable gain. Whereas the interest you may have paid on the mortgage in 2020 is a sales expense that gets included in your total sales expenses, and gets deducted from any gain you realized on the sale. So if you get a 1098 from your old mortgage holder next year for interest paid in 2020, you will "NOT" enter it as a SCH A deduction. If you do, then you can't claim it as a deductible sales expense. That would be double-dipping.

Whew! I know the above is a lot. But after taking your time and reading it through a few times (which I'm sure is necessary to absorb it all) does it make sense now?

Overall, I would highly recommend you bookmark this thread. That way if you have questions on reporting this sale on your 2020 tax return next year, you can just reference this thread so you don't have to waste time going through the back story. 🙂