Depreciation on Rental Property taken out of service

[st78]

I converted my rental to personal use (I did not live in it but I rented it out at below market rate) part way through the year.  After entering the number of days it was rented and days of personal use, Turbotax's Schedule E showed full year depreciation on the property.

So I went to the Assets/Depreciation section of my property and answered "Yes" to "Did you stop using this asset in 2021?" and entered the date on which it was taken out of service.  Then I answered "Yes" to "Special Handling Required?" because I converted the asset to 100% personal use. Turbotax then says my depreciation is zero.

I believe the correct depreciation should be the ratio of days it was rented, which is how Turbotax calculated the other rental expenses. 

How do I fix this?

[Cynthiad66]

@st78  Yes you are correct.  Your depreciation should be prorated.  Use this link for IRS information on rental property:  Residential Rental Property

In the rental interview questions you must show the date it was converted then answer the question after that appropriately.  

I used TurboTax Online version to recreate your situation.  Follow the steps below.  Let's add a new rental so that you can start from the beginning.  Leave the other one there until you are done.  You can always edit and delete later.  Start a new entry for rental property.

In the interview section it specifically ask if you converted property from rental to personal use.  Be sure to answer this question as it sets up the part year treatment.

How was Property converted?  There is a place to choose your answer

When you convert a rental, you divide the expenses between the time you lived in the home and the time it was used as a rental.

From primary residence to rental

From rental to primary residence

Then you will see this:

OK, keep these in mind as we continue:

Only enter expenses for when the property was a rental.

Since your rental became your home, we'll walk you through stopping depreciation on your rental property and rental assets in the Assets section later. Make sure to keep a copy of your depreciation report, you'll need it if you sell the property.

Was the property rented every day?  You select No

This pops up and sets the scene for the computation:

First, enter days rented at a fair price. Then, enter any personal use days. Don't include any days when the property was vacant or days you lived in the property (after you converted it from a rental) as personal use.

Fair rented days (Enter days)

Personal use days (Enter Days)

Make sure you follow the prompts at this point.

This should set up the return to accurately compute the part year depreciation.

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[st78]

Thanks for your reply. I am using TurboTax CD for Windows. It doesn’t seem to have the same questions as TurboTax Online.

I did not turn rental into primary residence. I converted it from fair market rental to below market rental, which IRS considers personal use. TurboTax either gives me full depreciation or zero depreciation (per original post). I don’t know how to fix this.

[ColeenD3]

You don't include personal days in a conversion. You are correct in that if you stop renting and convert to a not-for-profit rental, it is converted to personal use.

When you claim personal days, you are telling the program that you have a vacation home, not a conversion.

Go back through and make the correction. You will then be able to prorate expenses and depreciation based on the amount of time it was a rental.

[st78]

The program says not to count personal use if I converted it to my primary residence. If I put 0 personal days, the program doesn’t prorate any of my expenses for this rental at all, which is not correct. If additionally, I put in a date of disposition of the rental (I.e. date of conversion to non-profit rental),  TurboTax will show no depreciation expense, but full-year expenses for everything else.

[st78]

Sorry, please ignore this post. I made a mistake in my data entry!