For my uncommon and somewhat complex situation with rental I need some guidance on how to correctly report rental income and distribute the expenses and take depreciation.
I purchased my primary single-family home back in 2009. From January 2015, I started renting out roughly 25% of the primary property to long and short term (Airbnb) tenants until July 31, 2020. From 2015, I also started taking depreciation for about 25% of the house and Turbotax calculated rental and personal part of taxes, expenses etc. In 2019, I remodeled a bathroom that was part of this 25% of the property used 100% by tenants. So, in 2019 tax return I started taking depreciation for the bathroom remodel as well.
On August 1, 2020, I moved out of my primary house and converted it to 100% rental property. So, from January 1, 2020 to July 31, 2020 it was primary house with 25% rental and from August 1, 2020 to December 31, 2020 it was 100% rental house.
I am trying to figure out what is the best way to reflect this on my tax return?
Option 1: Show as two separate rental units (even though it is the same house)
- January to July partial rental (let TurboTax calculate the proportionate expenses and depreciation like it did from 2015 until last year)
- August to December whole house rental
Option 2: Show both the rentals as a single rental unit; if I go this route how do I calculate personal and rental portions of property taxes, mortgage interest, expenses and how do I calculate the percentage (single number) for the property (25% for part of the year and 100% for the rest) for depreciation?
If I choose Option 1 above,
I can take depreciation from January to July for the 25% of the house (as well as the bathroom remodel in 2019) and say from August 1st I stopped using this asset (including remodeled bathroom) in 2020 “Taken out of service for any other reason”
Add the same house as a new property (as well as 2019-bathroom remodel) and show (100%) of it was placed in service and start taking depreciation for the whole value of the property for the next 27.5 years?
If I do that then what happens to all the depreciations I have taken so far from 2015 on 25% of the property and the bathroom remodel? I also want to understand, if I ever sell this property, how would I recapture the depreciation?
