I love it when folks provide "the facts" without all the drama. Makes it simpler on all of us, so thanks for that. 🙂
I am assuming you have not yet filed your 2017 tax return, or if you did you handled it as I'm outlining here.
On the 2017 tax return when working through the rental, on the 2nd or 3rd screen in there's a screen with a checkbox on it for "I converted this property from a rental to personal use in 2017". You must select that option, and any others that apply on that screen. If there are passive loss carry overs from 2016, you will find that figure on Form 8582, Worksheet 6, Column b in your 2016 tax return printout.
Continue working through the rental "as normal" to report all of your rental income/expenses received in 2017. Work the program in order the way it's designed and intended to be used. This ensures you don't miss anything. If you jump around in the Rental & Royalty Income (SCH E) section of the program, you could quite easily miss something that will result in your return being wrong. So read every word on every screen before making selections. Understand also that the wording matters. There is a vast difference between "select the one that applies" and "select all that apply". So watch that.
In the rental expenses section you can only claim those expenses incurred while the property was classified as a rental. Expenses incurred after the last renter moved out are flat out not a deductible rental expense. This means you will have to pro-rate the property insurance. You can claim 1/12 of the property insurance for each month the property was classified as a rental. Property insurance for the period it time it was not classified as a rental is not deductible anywhere on your return.
For the mortgage interest, read the screen. Depending on your selections on prior screens, the program will tell you if you need to enter the total amount of mortgage interest reported on the 1098 Mortgage Interest Statement (In which case the program will do the pro-ration for you) or if you need to pro-rate it yourself. (I always recommend let the program do it for you.)
Once done with the Rental income and expenses section, the next section is Assets/Depreciation. This is where the "real" conversion takes place. You have to work through each individual asset listed in that section, one at a time. When asked "Did you stop using this asset in 2017?" You must select YES.
For the "Date of sale or disposition" enter a date that is one day *after* the last renter moved out. Then continue.
On the "Special Handling Required?" screen, read it to understand why I am telling you to click YES. Then click YES.
Now click Continue, and you're returned to the list of assets. If listed, click on the next asset in the list and work it through the same as you did the first asset. Your "date of sale or disposition" must be identical for all assets.
Once you've worked through all assets to show their removal for personal use, click the DONE button to leave the Assets/Depreciation section and keep working things through.
Now if at any time you owned this property you claimed vehicle expenses, you must work through the Vehicle Expenses section and show the disposition of the vehicle. That too will be "removed for personal use" same as the assets were.
When finished, click Done With Rental Property and finish working through the rental property section.
Once you have completed and filed your taxes and they have been accepted by the IRS, there are some forms you will need to print and keep. Without these forms, you will have problems if you convert the property back to a rental in the future, sell it, or you die. So print these forms and keep them in a safe place. I can guarantee you one hundred percent that you *will* need these forms at some time in your future. There are no exceptions either.
First, select the File tab at the top center of the program. Under that select the "Print/Save for your records" sub-tab.
Click the Save as PDF button.
Then click the "Forms to review or keep for your records" and under that select "Tax return, all calculation worksheets".
Now click the "Save as PDF" button. Pay attention to where the PDF file will be saved. By default, unless you change it, it's being saved to the documents/turbotax directory. Change the location if you like, then click the Save button.
Once saved, you can close/exit the TurboTax program entirely. Then open the PDF file you just saved. You need to print out the IRS Form 4562's for that rental property you just converted to personal use. There are three of them for that property. One prints in portrait format and the other two print in landscape format. You need the two that print in landscape format. One is titled "Depreciation and Amortization Report" and the other is titled "Alternative Minimum Tax Depreciation Report". Print and keep both in a safe place.
The next document you need is the Form 8582. If you do not have any passive losses to be carried over to next year, then this form will not be generated. So with the return open in the Adobe Reader program press CNTL + "F" to open the search box, enter "8582" and search for it. If you don't find it, then you don't have any carryover's to deal with. If you do find it, then print it. You want to keep Form 8582, Worksheet 6, Column b.
Store this information with your hard copy of your 2017 tax return. (I assume you do keep a hard copy of your returns each year, and don't depend on the technology to save your arse when you need it in the future.) You will without question, need this information in the future, if/when you convert the property back to a rental.
