Investors & landlords

. Now the rental was finally sold after years of vacancy,

If the property was vacant for years before the sale, then Option 2 was really not an available option to you. In your case, converting it to personal use in whatever year you did that prior to the sale, was the correct thing to do. Carrying it as a rental for two years with no rental income would most likely have raised flags with the IRS. If that happened, then they would most likely have "forced" you (sic) to convert and pay back taxes, late fees and penalties.

what are the steps in TT deluxe to report the sale which is a loss overall?

You can't report the sale in the SCH E section, since the property (I assume) was not classified as a rental in the year of the sale. YOu have to report it in the Sale of Business Property section.

1. Can the unallowed loss carried from the last year the rental was on TT be claimed in the year of sale?

Yes.

2. If each asset(i.e. apartment, capital improvement, air conditioner etc) for the rental has to be reinstated in order to report the sale, do I put in prior year depreciations amounts up till the year deleted from TT(actual) or do I have to put in what should have been up to the year of sale?

Depreciation stopped in the year and on the date you converted the property and all it's assets to personal use. So there is no depreciation after that date. You will recapture all depreciation taken on all assets up to that date.

3. for the skipped years' unclaimed property tax, insurance and depreciation(if I have to put in prior depreciation amounts of what should have been up to the year of sale), can these be claimed in the year of sale?

Terminology wise, there are no "skipped years". When the property was converted to personal use, that's what it became - "personal" property. Property Insurance is not deductible anywhere on your tax return for personal use property. Never has been. Though if you converted the property mid-year on your tax return, a pro-rated amount of property insurance can be claimed on the SCH E. Nothing for insurance can be claimed on SCH A or anywhere else.  Property taxes would be a SCH E deduction for the period of time it was a rental, and a SCH A deduction for the period of time is was personal use. Mortgage interest the same way - SCH E for time it was a rental and SCH A for time it was personal use.

if so, how to do that? adding these to the adjusted basis or adding to the carryover unallowed loss?

First, you need to print some documents from the tax year return you converted it to personal use. You need three documents.

 - There are two Form 4562's that print in landscape format. One is titled "Depreciation and Amortization Report" and the other is "Alternative Minimum Tax Depreciation". Most likely, you only need the first one. But if the program asks you for any AMT depreciation amounts, you'll have that data on the 2nd one.

 - IRS Form 8582 (Passive Activity Loss Limitations) - This form will show your loss carry overs.

When working this sale through the Sale of Business Property section, (I can't stress this enough) READ THE SMALL PRINT on each and every screen. Also click the "Learn More" links where present to further educate yourself and save time.

If you do have further questions as you're reporting this sale, please provide the details so we can be sure the information we provide is correct for "your" specific situation. For example (may not be all inclusive):

 - Date converted to personal use.

 - Was property your primary residence for at least 730 days (do not have to be consecutive days) of the last 1826 days you owned the property, counting back from the closing date of the sale?

 - Closing date of the sale.

Now I see a lot where people claim they have sold the property at a loss (as you state) and that may not actually be the case. Remember, recaptured depreciation reduces your cost basis in the assets. So it's perfectly possible that what "you" call a loss, the IRS sees as a gain. Just want to make you aware of that.

Several things about depreciation recapture.

 - You are required to recapture all depreciation taken, or the depreciation you "should" have taken if you did not depreciate.

 - Recaptured depreciation is added to your AGI in the year of recapture, thus it "could" have the potential to bump you into the next higher tax bracket.

 - Recaptured depreciation is taxed at the "ordinary" tax rate, not the capital gains tax rate. So that's why it's IMPORTANT that you let the program do the math. If you do it yourself and just decide (incorrectly) to reduce your cost basis by the depreciation taken, then you'll be paying taxes on that recaptured depreciation at the wrong tax rate.