how to report losses from squatters when selling the property?

[AFmom]

We converted our primary home to rental when we left on military orders.  after a couple of normal rentals recorded on schedule E, we had a squatter who only left after going to court.  Now to sell the house, which has not produced income while he squatted.  We had to do extensive repairs.  

Where to show depreciation?  Last rent collected February 2022. Squatter from March-october 2022.  Selling November 2023 after many personally and professionally done repairs and upgrades.

[DoninGA]

Loss of rent is not reported on a tax return or on Schedule E.

You should have reported the income and repair expenses incurred in 2022 on your 2022 tax return Schedule E.  Any improvements made on the property in 2022 should have been entered as an asset and depreciated.

If you did not report the rental property income. expenses and assets on your 2022 tax return then you need to amend the 2022 tax return that was filed.

See this TurboTax support FAQ for amending a tax return - https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-return/amend-change-correct-return-a...

[Critter-3 · Accepted solution]

FYI ... the Sch E should flow thru from the 2022 return and even if you did not rent the property at all in 2023 prior to the sale you MUST enter 1 day rental use (0 days used personally) to keep the Sch E on the return so you can report all the holding costs like usual and report 0 rent recieved.  Any repairs made in 2023 (even improvements) will be added to the Sch E as repairs ... do not enter them as assets since you cannot depreciate an asset if placed into service and removed from service in the same tax year.  Doing it this way will let you report the sale the easiest way possible in the TT system.  The alternative method can be confusing at best.  Do NOT enter the sale a second time later in the system ... skip that section completely if you have already reported the sale in the Sch E section and sold off all the assets already.  

[Hal_Al]

Some other issues:

You probably still qualify for the home sale exclusion of the capital gain (up to $500,000 Married filing jointly). Active-duty military, foreign service, and intelligence community members may be able to use more than the normal  five year period to live in the home for 24 months. They are allowed to “suspend” the 5 year period. If you meet certain requirements, you can accumulate the time you lived in the home over up to a 15-year period.

If you qualify for the home sale exclusion, you still have to pay tax on the "depreciation recapture" portion of the gain.

You may not take a deduction for (or depreciate) the value of your labor for  "personally  done repairs and upgrades".

If you qualify for the home sale exclusion, I recommend you enter the sale as sale of home rather than sale of a rental.