Start working through Rental & Royalty Income (SCH E). One of the screens near the start will have a selection on it for "I converted this property from a rental to personal use in 2021". Select it.
Continue working it through "as if" nothing changed
When you come to the summary screen you will enter all of your rental income and expenses, even if it's zero. Then you MUST work through the "Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were converted to personal use).
Basically, when working through an asset you select the option for "I stopped using this asset in 2021"
When prompted for the disposition date, enter the date of conversion to personal use. Typically, this is one day after the last renter moved out.
On the "Special Handling REquired?" screen, read that screen to understand why I am telling you to click YES. Then click YES. If you click NO then you are "forced" to enter sales information. You did not sell this property, so click YES.
Note that you MUST do this for EACH AND EVERY asset listed.
When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use".
After your completed tax return is accepted by the IRS, you will need to print this return because there are certain forms you will need to keep, as you "WILL" need them at some point in the future when any one of three things happens in your life.
- You sell the property
- You convert the property back to a rental
- You die.
When you print the return, there are two Form 4562's you need to file away with your original purchase paperwork on the house. Both 4562's print in landscape format. One is titled "Depreciation and Amortization Report" and the other is titled "Alternative Minimum Tax Depreciation Report".
Another form you will need to keep is IRS Form 8582-Passive Activity Loss Limitations. Again, file this with your original purchase paperwork you received at the closing when you originally purchased/acquired the property. You "will" need it at some point in your future.
Now, if the IRS Form 8582 is not present, that's okay. That just means you don't have any passive carry over losses. Therefore, you have no need for the 8582 and the program will not generate a form you do not need.
