home moved to rental , back to home , and now back to rental

[danlutterman]

My property was purchased in 1/1/88. cost net land 58740 land 51260

became rental in 12/1/90

became residence in 10/1/2016

went back to rental in 3/1/2020

prior depreciation was 55239

No matter what I do , My future depreciation always comes up as zero.

Do I use "non deductible expense in prior years"?

Do I use "carryovers to past depreciation"?

[Carl]

What happens here, is that your 27.5 year depreciation starts all over from year 1, based on the "adjusted" cost basis.

Your adjusted cost basis is determined by subtracting all the depreciation you took between 12/1/1990 and 10/1/2016, from the original cost basis used for figuring that depreciation.  This becomes your "new" cost basis on the 2020 tax return, and depreciation starts all over. Note that you will adjust the cost basis on the structure and other depreciated assets only. You will not change the cost basis of the land.  Thats because land is never depreciated. This can be tricky to understand with the TurboTax program. But it's like riding a bike. Once you "get it" then you've "got it"

Example:

In 1990 the original cost basis of the property was $100,000. Of that, $70K was allocated to the structure and $30K was allocated to the land. Only the $70K gets depreciated over the next 27.5 years.

In 2016 the property was converted back to personal use. Up do the date of conversion the total amount of depreciation taken on the property was $35K.

In 2020 I covert the property back to rental. I have to subtract the $35K of depreciation already taken, from my cost basis. So now my "adjusted" cost basis on the property is $65K

In TurboTax 2020 I enter $65,000 in the COST box, and I enter $30K in the COST OF LAND" box. Note the cost of the land did not change. The program will "do the math" and allocate the $35K difference to the structure. Now that $35K is what will be depreciated over the next 27.5 years, with tax year 2020 being year 1 of depreciation.

[M-MTax]

Do I use "carryovers to past depreciation"?

You use $3501.......plus any improvements you made in the meantime......as your new basis for depreciation and the new in service date is 3/1/20.

[Mike9241]

some other considerations. should you sell your house you will be subject to depreciation recapture on all the depreciation you deducted over the years. which.    you also have to be careful about converting it back to your personal residence and then selling because a portion of the gain could be attributable to non-qualified use and that portion of the gain would not be eligible for the home sale exclusion.

example bought 1/1/88

converted back to personal use 5/31/22

sold 1/1/23

total ownership 35 years (88-23)

nonqualified use after 2008 (1/1/2009 -  9/30/2016 (7.75 years) and 3/1/2020 - 5/31/2022 ( 2.25 years)

total period nonqualified use 10 years

sale price net of selling expenses $200,000

total gain $210,000 - $110,000 + $58740 (depreciation taken) = $158,740 

$58,740 reported as unrecaptured 1250 gain

nonexcludable gain 10/35 * ($158,740 - $58,740)

[danlutterman]

I tried the recommendation and still came up with zero dollars  for depreciation. I have a few questions on some variables within turbo tax.

In Rental Assets

amount paid 3501 (58740-55239)

land 51260

purchase date  1/1/88 

---------------------

purchased new 

NO  have not used 100% for business 

used for for personal purposes before business

date started for business   12/1/1990 (or new date of 3/1/2020?)

percentage of use 25% (or 100%?)

--------------

As I said , no matter what I do the end is still the same

[Carl]

You have numerous things that are wrong.

amount paid 3501 (58740-55239) Not possible. The amount paid is the "TOTAL" amount you paid for the ENTIRE property, (which includes what you paid for the land), minus the amount of total depreciation taken in prior years.  Using your numbers the amount in the COST box should be $54,761.

land 51260 This is the value that will *Not* change since the very first time you put it in service.

purchase date 1/1/88 No problem here, provided it matches exactly the date you entered as the purchase/acquisition date the first time you started renting the property.

purchased new That is corrct

NO have not used 100% for business YES, you have "in fact" used it 100% for business starting from the 3/1/2020 date you placed it in service. What you used it for before that date *does* *not* *count* for anything.

used for for personal purposes before business You should "NOT" be having to make that section. Above that selection you "need" to select that it was used 100% (ONE HUNDRED PERCENT) for business.

date started for business 12/1/1990 (or new date of 3/1/2020?) The new date of 3/1/2020.

percentage of use 25% (or 100%?)  ONE HUNDRED PERCENT business use, since 3/1/2020. What you used it for before 3/1/2020 just flat out doesn't count for anything.

[M-MTax]

@danlutterman you were told depreciation starts over with a new 27.5 period so you have to enter the $3501 and then the new start date of 3/1/20.

[Carl]

so you have to enter the $3501 and then the new start date of 3/1/20.

Flat out wrong. The amount entered in the "COST" box is the "ENTIRE" amount paid for the property when originally purchased. That *INCLUDES* the price of the land. From that amount, you subtract the depreciation already taken, and that "NEW" total is what gets entered in the COST box.

[danlutterman]

Carl

 I got it !!!!!!!!!!!!!!!!

depreciation is $101.  Sorry for being so thick. Perhaps I should have an accountant do my taxes next time.

Thank you so much for your help. Your a life saver.

[Carl]

I got it !!!!!!!!!!!!!!!!

It's kinda like riding a bike. Not very intuitive. But it's easy once you "get it". It's just the way the program does it. You enter the total cost. Then you enter how much of that total cost is for the land. Then the program (not you) will do the math to figure the structure cost, and will depreciate based on the structure cost.

[M-MTax]

Flat out wrong. The amount entered in the "COST" box is the "ENTIRE" amount paid for the property

It is not "flat out wrong"! Converting from rental to personal use is a disposition so the basis for depreciation starts over when the property is converted back to rental use. The new basis is then the lower of the FMV or the adjusted basis and...in this case....that would be $3501. If you do the math that's how @danlutterman could get $101 as a depreciation deduction for 2020....with a basis of $3501, 27.5 years, and in service date of 3/1/20.

[Carl]

@M-MTax 

It's quite obvious you do not understand how the program works.

In the COST box you enter the total of the cost you paid for the entire property, minus the depreciation already taken. In this case, that would be $54, 761

In the COST OF LAND box, you enter the value of the land. IN this case, that would be $51,260.

The program (NOT YOU) will "do the math" and the program (NOT YOU) will assign a cost basis of 3501 to the structure for depreciation over the next 27.5 years.

[M-MTax]

@Carl 

It's quite obvious that you don't understand how the rules work. The new basis is the LOWER of the FMV or the ADJUSTED BASIS. If TTX doesn't allow for that then that's a problem with TTX. It's absurd to enter the basis for depreciation as the "cost you paid" and show an in service date of 3/1/20 AND THEN show tens of thousands of dollars in prior depreciation.