I myself would not bother converting the property to personal use on the 2019 tax return. I would leave it as a rental since the "intent" was to rent it out by the end of year. I also would "NOT" add the $40K of property improvements to the 2019 return. I would instead wait and add them to the 2020 return. Here's a gist of how I would do it on the 2020 return next year.
- Convert the property and all listed assets (before adding the $40K of improvements) to personal use on Jan 1, 2020
- Add the $40K of property improvements with an "in service" date of the closing date of the sale and a business use percentage of 1% (yes, one percent business use). If any depreciation is taken, it will be negligible.
After working through the rental section for that particular rental in it's entirety and doing the above, I would then work through it a 2nd time to report the sale using my "reporting the sale of rental property" guidance.
On the 2nd work through to report the sale, that would mean in the property profile section you would at a minimum, have both "I converted to personal use" *AND* "I sold or otherwise disposed of this property" selected.
If you convert it to personal use on your 2019 return just to stop depreciation (which you can if you want) then it will complicate things for reporting the sale on the 2020 return. Don't get me wrong, as it's perfectly doable. But it will require more work and more manual math on your part.
