Please read my entire post before doing anything, or jumping to conclusions.
If you received the check in 2020, then it is 2020 income. If you did not have a tenant in 2021, then you had no rental income nor expenses. It was vacant property.
It was specifically stated, " In December 2020, I accepted a check for $2,000 and rented this property for a 4-month period from January 2021 thru April 2021." So the property was rented for the first four months of 2021 and there was a paying tenant in the property. The fact the rent was paid the year prior is irrelevant. That rental income was correctly reported on the 2020 tax return, since it was in fact, paid in 2020.
After the 4-month rental period concluded we determined that the property was not in viable rental condition and stopped renting it.
Noted.
We are going to report that it was a rental for only 120-days (January thru April) in 2021. Should we input into TurboTax our 2021 expenses, assets/depreciation incurred for the full year? Or should they be prorated?
I highly encourage you to manually figure everything and do not elect the option to allow the program to pro-rate anything.You will of course, report zero rental income for 2021.
You can claim 100% of all rental expenses incurred up to April 30,2021. Any expenses incurred after that date, are just flat out not deductible. Period.
You will need to manually pro-rate the mortgage interest, property taxes, and property insurance.
33% of the mortgage interest and property taxes is a valid schedule E deduction. The remaining 67% is a SCH A itemized deduction.
33% of the property insurance is a SCH E deduction. The remaining 67% is not deductible anywhere on your tax return.
While you may already know the below, I'm providing the details because it's not something that is always readily apparent in the TTX program.
When working through the property on the 3rd screen in the Property Profile, make sure you select the option to indicate that you converted the property from rental property to personal use in 2021. The conversion date is dealt with later. Just make sure that if you have any carry overs that you select that option and enter your carry over amounts if applicable.
Also, for "was this property rented all year?" select yes. That's because this property was rented for the entire time in 2021 that it was classified as a rental. What the property was used for after you converted it to personal use, doesn't count and doesn't matter.
Next, work through the rental income section. Note that you still have to enter a digit in this section even if that digit is a zero.
Next, work through your expenses section, entering things as per my guidance above.
Next, work through the Assets/Depreciation section. If asked, elect to go straight to your asset summary.
At a minimum, the property itself will be listed there. If there's more than one asset listed, then you must work through each individual asset one at a time to show it's conversion to personal use and stop the depreciation of that asset on the date of conversion. I'm assuming the conversion date is Apr 31, 2021.
On screen "Did you stop using this asset in 2021?" select YES.
On screen "Disposition Information" enter 4/30/2021
On screen "Special Handling Required?" read the information on that screen to understand why I am telling you to click yes, then click YES. (If you click NO, you will be forced to enter sales information. You did not sell the property so select YES)
Finish working through that asset, then do the same for any other assets you may have listed.
Once you have finished the assets/depreciation section, if you claimed any vehicle use for this rental, even if less than 100% business use, you must show the disposition of the vehicle. Work through the vehicle expenses section and show it's disposition as "removed for personal use".
That will take care of this as far as the SCH E goes. But you're not quite done yet.
Once you have completed your tax return and filed it, you need to print out a few documents because you will need those documents at some point in your future when one of three things happens in your life.
1) You sell the property
2) You convert the property back to a rental
3) You die.
In your case, there's a 4th thing. If you demolish/raze the structure, you will need the below documents in the tax year you do that. What you need to print and keep:
Form 4562 that prints in landscape format titled "Depreciation and Amortization Report"
Form 4562 that also prints in landscape format titled "Alternative Minimum Tax Depreciation"
IRS Form 8582 Passive Activity Loss Limitations.
Take note that if the 8582 is not present, that's fine. That just means you don't have any carry over losses. With the changes in the tax laws in 2018, it's perfectly possible the 8582 may not be present in your 2021 tax return.
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