Our ill/destitute daughter moved into our rental house March 1, 2020.No income since then. Can we write off all year expense, tax, insurance, etc. or must we prorate???

[Carl]

If you are not charging her rent, then you need to show the house as converted to personal use effective 3/1/2020. You can only claim those rental expenses incurred between 1/1/2020 and 2/28/2020 on the SCH E. Make sure you show the conversion on each individual asset listed in the assets/depreciation section also, so that depreciation of those assets stops on 3/1/2020.

[Carl]

Oh yeah. Depending on what you select, you may need to manually prorate the property taxes and mortgage interest paid in 2020 between the SCH E for the period of time it was a rental, and SCH A for the period of time it was personal use property.

Note that you will also need to prorate the property insurance too. Only 2/12 of the property insurance paid in 2020 (regardless of when it was paid) is deductible on the SCH E. The remaining 10/12 is not deductible anywhere, as insurance on personal use property is never deductible.

[Irene2805]

If the house was available for rent, you can deduct expenses incurred up until the time she moved in.  If your daughter did not pay rent, the house is considered a second home, rather than a rental property, after March 1.

You can include the rest of the mortgage interest and real estate taxes on Schedule A.

[Mike9241]

you will also need to keep track of all the depreciation you've taken as a rental because if you eventually sell the depreciation is subject to recapture ( under current law even if you don't sell it for the next 30 years)

[Carl]

The major thing is, if/when you convert the property to personal use, then after your 2020 tax return as been filed and accepted by the IRS, you need to print it out. There are three documents from that rental that you will need it a later year when one of three things happens in your life.

You'll need the IRS Form 4797 which shows your PALs (Passive Activity Loss carry overs).

You'll also need both the the IRS FOrm 4562's for that rental property, as they show the depreciation taken up to the date of conversion. The two form 4562's I"m talking about print in landscape format. One is titled "Depreciation and Amortization Report" and the other is "Alternative Minimum Tax Depreciation".

You'll need the above mentioned documents in the tax year one of three things happens in your life.

1) You convert the property back to rental.

2) You sell or otherwise dispose of the property.

3) You die.