Two possible ways. I'm going to recommend the way that (in my personal opinion) may be the better way in the long run. It's a bit of work, but the extra work will only be for the 2021 tax year thus making future tax years easier to deal with on the tax front. We'll start by dealing with the 50% you originally owned before you purchased the rest of it.
Go ahead and work that through "as if" nothing changed. Report your rental income/expenses "as if" nothing happened. You'll report your income/expenses up to the closing date on your purchase of the other half, and stop there.
Now in the Assets/Depreciation section you'll need to work through each individually listed asset, one at a time. You will be converting each individual asset to personal use with a conversion date of one day "before" you closed on your purchase of the other half.
As you work through each asset, you'll need to write down the following, as you will need the information later on your 2021 tax return.
- Name of the Asset
- Cost of the Asset
- Date the asset was placed in service
- Total amount of *PRIOR* year's depreciation already taken by *you* and you only.
- Total amount of current year (2021) depreciation that will be taken bu *you* and you only.
So you'll write down the above four items of information for each individual asset listed in the Assets/Depreciation section as you work through each asset and convert it to personal use.
Once you finish working through the existing asset in it's entirety and are returned to the Rental & Royalty Summary screen.
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Now click the "Add another rental or royalty" button and enter the property information "AS IF" you just purchased the entire property brand spanking new with 100% ownership (which is true now). For the assets/depreciation section, here's how you will deal with the cost basis of everything. I'll use the property itself as an example.
Your "COST" will be what you paid for your original 50%, plus what you paid for the other 50% you purchased in 2021, ***MINUS*** the total amount of depreciation already taken on the property.
Your "cost of land" will be at least double (or more) than what you paid for your original 50%. Since you purchased the other 50% in 2021 I expect you to have paid more for the new 50%, than what you paid for your existing 50% when purchased however many years ago.
The property will be placed "in service" on the closing date of your purchase of the other 50%.
Depreciation on this property starts all over from day one, for the next 27.5 years using your new cost basis.
Note that the 2021 tax return will be the only year where you'll have TWO rental properties listed on the SCH E. Next year on your 2022 tax return you'll only be dealing with the property for which you now have 100% ownership, and the old property can be deleted from next year's return, if it so happens to get imported into the 2022 return.
