Help with Variable Business Use Percentage

[jagermeister]

I'm trying to do my taxes with Turbotax Premier.  I sold a rental property last year that hadn't always been a rental property.  My wife bought and then lived in the property until we got married.  We then converted it to a rental property which it stayed as a rental until we sold it last year.

In turbotax, when trying to show the sale of the rental there's a section that asks, 'Special Handling Required?'.  One of the listed items to determine if special handling is required is, 'The business use percentage of this asset varied during the years you owned the asset'.

I'm a bit confused by this.  Since it wasn't always a rental then does that means the business use wasn't always 100%?  Or does it mean that after it was converted to a rental and in service was it a 100% rental? 

And if the former, when clicking on the 'Learn More' link, turbotax states, 'If the business use percentage varied over the life of the asset, the program cannot automatically compute the sale information.'

What do I do then?  

[Carl]

That statement can be misleading. If, from the date it was converted to a rental, if it was *NEVER* *EVER* *EVER* used for personal pleasure use *OF* *ANY* *TYPE* by the owner of the property, then the property was *ONE* *HUNDRED* *PERCENT* business use. Period. End of story. What the property was used for before it was converted to a rental *DOES* *NOT* *MATTER* in any way, shape, form or fashion.

So "Special Handling *IS* *NOT* *REQUIRED*.

If, for any reason *ANY* reason you select yes on the special handling required screen, what you are saying is that you did NOT sell the property and you will *NEVER* be asked for sales information.

[jagermeister]

Thank you for your help!

I have another question for you.  I've gone through the 'sale of property/depreciation' section.  Since I sold the property for a gain, I'm showing a gain ($1) for each of the assets.

One of those assets is refinancing from several years ago.  I'm getting an error when turbotax checks for errors when I'm finished with my federal taxes input.  The error states that the asset sales price should be blank based on my entry for amortization code section.  This intangible is not considered Section 1245 property.

What should I do in this situation?

[Carl]

One of those assets is refinancing from several years ago.

I think you're talking about your refinancing fees, which are amoritized (not capitalized) and deducted (not depreciated) over time. You can't "sell" that. Your refinancing costs are amortized and deducted over the life of the loan. usually 15 or 30 years. If you sell before the end of life of the loan, then you get to deduct whatever remains to be deducted of those financing fees.

Even though the program refers to that is an "asset", that's not what it is. The correct reference for your refinancing fees is "amortized intangibles".  It's something that you can't see, taste, touch, smell or hear. That's why it's "intangible"; something that does not exist in a physical form.

Basically, work through the asset and indicate that you "stopped using this asset in 2020". Then on the special handling required screen, select YES. Then "READ THE NEXT SCREEN" and select the option to have the remaining amount transferred to miscellaneious expense.

[kivgolan]

Hello.

What should I do, If I bought the condo on 11/14/2002  and rented out next day 11/15/2002.

On 10/05/2008 I retire this condo to personal use as main home till I retired 01/07/2017    and moved to my  home in Florida. 

 I rented out condo  again from 03/15/2017 till 07/15/2020. Never live there after 01/07/2017

Then I sold it 11/12/20. How to handle this situation?

Thank you

[Carl]

What should I do, If I bought the condo on 11/14/2002 and rented out next day 11/15/2002.

On 10/05/2008 I retire this condo to personal use as main home till I retired 01/07/2017 and moved to my home in Florida.

In your 2017 tax return you will find two IRS Form 4562's for that rental property. They both print in landscape format. One is titled "Depreciation and Amortization Report" and is most likely the one you need. The other is titled "Alternative Minimum Tax Depreciation" and you will need that if asked for it.

I rented out condo again from 03/15/2017 till 07/15/2020. Never live there after 01/07/2017

When you converted the property back to a rental in 2017 you reduce the cost basis of the structure (not the land) by the total amount of depreciation taken previously, and depreciation starts over from year 1 on 3/15/2017. The same holds true for any other rental assets that were placed back in service in 2017. If you did not do this on the 2017 return, then you have more than 2 years of incorrect depreciation and can't just amend those prior year tax returns. You will require professional help.

Basically, IRS Form 3115 has to be filed to correct the mistake, if this is your case.

Then I sold it 11/12/20. How to handle this situation?

Depends on if you correctly reduced the cost basis on your rental assets when you placed them back in service in 2017, or not. If you did not, then you need professional help. This is especially true if your state taxes personal income, as this could be a double-whammy for you.