I would not suggest converting it to personal use, but I would indicate it was taken out of service at a certain date when it was no longer available for rent. Part of they key is that is needs to be available for rent, which it doesn't seem like it was while under repair and capital improvement.
The capital improvement will be added as sales expense next year when you sell it to make sure the costs are reflected in the sale. However, when you take an asset (or assets) out of service it's possible those assets may not carryforward to 2021.
Keep your depreciation worksheets so that you have the information for reporting the sale in 2021. In this scenario you will add the improvements to the original cost basis and then enter the depreciation that was used for the life of the asset(s) to determine the actual gain on the sale.
When you have more than one asset that is included in the sale (land, building, previous capital improvements) here is an example of how you apply a sales price and sales expenses to the assets at the time of your tax return sale entry.
Example: Original Cost (of each asset on your depreciation schedule)
$10,000 Land = 13.33%
$50,000 House = 66.67%
$15,000 Improvements = 20%
$75,000 Total = 100%
Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.
The loan payoff has no effect on the sale. You have already used those loan proceeds by using the full cost basis of the rental home when you initially started your depreciation. It may seem like it is a gain inflation but it's not.
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