Investors & landlords

Yes, that was quite a change of events over the years. let me answer your questions one by one.

1. The rental was deleted in 2019 because of no income or expenses were being claimed. There was nothing to report. The IRS would not interpret this as converting to personal use. It was strictly a dwelling that was vacant because it was inhabitable. If you are questioned about this, this is how you would explain it.
2. No, amending is not necessary because Turbo Tax deleted this because there was activity in 2019 but if you wish to claim the $4000 depreciation, then you should amend so that it will add $4000 to your passive loss carryover..
3. Converting it to personal use is not correct. You did not move into the property or use it for recreational purposes. It was vacant and inhabitable, unfit for personal use. 
4. The cancellation of debt generated from a 1099-C would never appear as income in 2020 on a Schedule E regardless of your circumstance. The 1099-C is simply mortgage forgiveness.  It would appear as ordinary income (Or loss) on line 8 of your 1040.  In addition, if there was a a capital gains activity, It would generate a Schedule D and and report that on line 7 of the 1040. It is difficult to tell if you have a capital gains without looking at your actual tax return. 
5.  It is correct to claim mortgage interest as a 2020 deductible expense.
6. My question is, when did you indicate you converted to personal use because passive losses, including depreciation, would have ceased at that point. If in 2019, you could amend it and change the answer, then the passive losses carryovers would have continued into 2020. 
7. Lastly, you would claim depreciation each year because the depreciation would need to be recaptured this year when the property was disposed of (foreclosed). IRS says that this needs to be recaptured whether or not it was claimed in the past. This may may or may not result in a capital gains situation this year. 
8. Be sure to amend your 2019 return first to claim the depreciation. 
9. Now let's address what I think is a critical issue. I cannot say for certain if you filled out your cancellation of debt properly based on what you told me. You mentioned earlier you linked it to Schedule E but this has nothing to do with Schedule E income. The correct way to report his is to perform the following steps. in your program, go to: 

• Federal taxes>wages and income>choose what you work on
• less common income>miscellaneous income>start
• cancellation of debt (1099C) etc
• under tell us about your canceled debt indicate that you received the 1099C for another type of loan for a non-personal debt. This is a business debt and not a personal one
• The next screen will recommend you seek advice from a tax professional or reference IRS publications 4681 or 544. I assume you entered all your information on the 4797 directly but MAKE SURE you read these publications to make sure this was done correctly. 
• pub 4681             pub 544

[Edited 03-29-2021|07:00 PM PST]