Depreciation recapture/taxation occurs in the tax year you sell the property. Some things to be aware of when converting from rental to personal use.
- You must work through each individual asset one at a time and select the option for "I stopped using this asset in 2019". Make sure your stop use date is identical for all assets that are current "in use".
- If you claimed "any" vehicle use for the rental, even if that use was less than 100% business use, you still have to work through the vehicle expenses section and just show the vehicle as removed for personal use.
If this is all done completely and correctly, then the data on this property will not be imported into your 2020 return next year, provided you do not indicate on your 2020 return that you had rental income in 2020.
- When you are completely done with your tax return and have e-filed it *AND* it has been accepted by the IRS, *PRINT* *YOUR* *RETURN*. I can guarantee you with 100% certainty that you will need this printed return in the future when one of three things happens in your life.
1) You convert the property back to a rental
2) You sell the property
3) You die.
When you print, do not elect to print only those forms "For your records" or only those forms "for filing". You want to print *EVERYTHING*. So don't be shocked when you see the printout is more than 100 pages. You'll be printing all the worksheets and calculation forms used by the program to figure your taxes -things such as depreciation and carry forward losses and the such. You *WILL* need this in your future.
Most importantly, you will need the IRS Form 4562's as well as the IRS Form 8582.
You will see two IRS Form 4562's for this property. Both print in landscape format. One is titled "Depreciation & Amortization Report" and the other is "Alternative Minimum Tax (AMT) Report". Keep both of these forms as sell as the 8582 and keep them "FOREVER".
When you do your 2020 taxes, the information on these forms will "NOT" be imported into the 2020 program. So protect the 2019 printout with the same level of protection you guard your SSN with.
When you sell the converted rental to personal that you have owned and lived in for the 2 out of 5 years, do you follow the worksheet 2 from pub 523 and can you explain the use of the property as a rental home after 2008 in the review of the eligibility test in pub 523?
Enter this transaction under Sale of Home (Less Common Income) and TurboTax will walk you through all relevant questions for eligibility. You don't need to consult IRS Pub 523. You will need to know the total depreciation taken while the property was held as a rental.
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