Can I convert a rental to a second home??

[amerjen1958]

From June 1997 till January 31, 2016 my wife and I rented out a single family home, which was our primary residence before June 1997, in a suburb of Dallas, Texas.  The renters vacated the rental on January 31, 2016 and since February 1, 2016 the home has undergone a renovation, in fact I am still working on it.  We want to convert it from a rental to a second home but continue to live in our current primary residence.  Can this be done for this tax year (2016).   We want to hold it as our second home for at least two years, till Feb 1, 2018, at which time we may want to sell.   Would we have any problems with any IRS rules and can Turbo Tax handle this type of situation...........

[TaxGuyBill]

In the event you wanted to convert the rental into your Principal Residence for two years (and use your other home as a secondary home), there could be some tax advantages by excluding PART of the gain.  If that is an option, you may want to do as Hal_Al suggested and go to a tax professional to see if the tax savings would be worth it.

[Hal_Al · Accepted solution]

That will do you no good. There is no tax advantage to selling a 2nd home. Only the sale of your primary home qualifies for a tax exclusion.

The gain on the sale of a 2nd home is taxable, but a loss is not deductible and the depreciation taken while a rental  still must be recaptured (taxed). 

It's complicated, but TurboTax can handle it. Even so, you may want to consider professional tax help

[TuTU196844]

I have a single family residence as an income property out of state. I would like to convert it to a second home, but NOT a principal residence. I have owner it since 2011. Can I use Turbo Tax instructions to accomplish this >

[Critter-3]

All you need to do is indicate the rental was removed from service and converted to personal use ... follow the interview screens in the rental info and assets sections.  

[Carl]

I would like to convert it to a second home, but NOT a principal residence.

For your federal taxes, there is no such designation as primary residence or personal home.  It's either business use, or personal use. That's pretty much it. Just work it through the SCH E section of the program and "READ" "THE" "DETAILS" on each screen. You have to do more than just select the option for "I converted this property to personal use". The program will guide you "IF" you read the details on each screen and heed them.

[TuTU196844]

I want to stop renting and convert status from income property to 2nd home. Will I be taxed on the depreciation taken so far ? what are the steps in reporting the change ?

[TuTU196844]

On converting from income property to personal use and NOT primary residence, on scad E

 just complete what percent personal use and for the entire year it would be 100 % or what ever date in the year to take effect. If 365 days or 100 % personal use, there are still SOME tax deductions that qualify ? Such as Taxes I presume ?

Can I do the same conversion for a total of 2 single family renal  houses ?

Dan

[Carl]

I want to stop renting and convert status from income property to 2nd home.

For tax purposes (I reinterate *FOR* *TAX* *PURPOSES*) there is no such terminology. (Well there is. But not in the sense you may think). You convert the rental property to personal use. Period. End of story. What that "personal use" may be is not defined on your tax return. When you convert to personal use, that stops all depreciation on the date of conversion. Additionally, expenses incurred after the date of conversion are just flat out not deductible. (Do not confuse *expenses* with *property improvements*. They are two completely different things.)

Will I be taxed on the depreciation taken so far ? what are the steps in reporting the change ?

No. Depreciation is not recaptured and taxed until the tax year you sell the property. So in the tax year you convert the property to personal use, make sure you print out the tax return and retain the IRS Form 4562's related to that property. You will need the information on those forms when you sell the property - even if you don't sell it for the next 20 years.

[gjgogol]

my renters left in 2019. i converted the rental to personal use on 1/1/2020 but I still lived in my primary residence. do i have to actually live in the unit at all in order to claim mortgage interest and taxes on Sched A? Also, I subsequently sold the unit on 3/3/2021, where in TT do I show this sale...in "Sale of Business or Rental Property" section or somewhere else?

[PattiF]

The former rental would be considered as a second home after it was no longer being rented. You can deduct mortgage interest and property taxes on Schedule A for a second home. Those deductions are subject to the $10,000 cap.

The sale of a previous Rental Property would be entered as the Sale of Business Property under Other Business Situations of Federal Income.

Indicate that you have a sale of business or rental property that you haven't already reported.

Follow the interview to enter the details of the sale and the total depreciation you took on the property while it was rented. Before you leave that section, be sure you enter the Total Gross Proceeds. TurboTax will calculate the capital gain/loss and depreciation recapture to report on your tax return

[gjgogol]

TT did not calculate the depreciation. I had to do it manually.