LLC with 2 rentals when I rental is converted to Personal Use

[judgedcm]

I have a single member LLC that owns 2 rental properties. I acquired the LLC through inheritance in June of 2023. For many years before that, my grandmother owned the LLC with the same 2 rental properties. During that time, the CPA combined the 2 properties as 1 asset for the purposes of income, expenses and depreciation. In 2023, the CPA again combined the 2 properties as 1 asset for the purposes of income, expenses and depreciation after taking into account the stepped-up basis. I used the CPA's report when preparing my 2023 taxes using Turbo-Tax. In late 2024, 1 of the units was transferred from the LLC to me personally and I began using it as my primary residence. I am trying to figure out how to enter all this on my taxes for 2024. I have good numbers for income and expenses for each unit. But how do I deal with the reduced depreciation that applies from the time 1 of the units was transferred out of the LLC? None of the situations in the "Do Any of These Situations Apply to This Property?" screen seem to apply. We do know the stepped-up basis for each property as of June, 2023 when I acquired the LLC. I am thinking I need to go back to that date and create a separate depreciation schedule for each unit. I could then calculate the correct depreciation for the months the LLC owned both units and the months it only owned 1 unit. Is that correct? If so, how do I use Turbo-Tax to report this?

[PatriciaV]

Yes, you are correct that reporting the two units as separate rental properties is the best option. This simplifies allocating costs and the issue of a change in business use (conversion to personal).

Your best option may be to amend your 2023 return to reflect the separation of the two properties. See: How do I amend my federal tax return for a prior year?

Use the amended 2023 return to prepare your current year 2024 return. TurboTax will handle the conversion of one unit to personal use, including the depreciation calculations. 

Note: On the TurboTax screen "Do any of These Situations apply to This Property?" indicate that you "converted the property from rental to personal use" then continue to the asset summary screen and report the date it was taken out of service.

Be sure to keep records for the converted property. You'll need both the adjusted basis and the accumulated depreciation should you sell the property in the future, or if you convert it back to rental use.