Primary residence converted to rental after improvements

[bn1977]

[Desktop version] We converted our primary residence to a rental in 2025. I am having trouble finding where to input the correct basis for depreciation purposes to accommodate improvements. Consider this example.

Total cost when asset was acquired: $400,000

Amount of land included in the cost: $100,000

Basis = $300,000

HOWEVER, while living in the house for several years, $50,000 was spent on improvements (not repairs), thus taking the basis to $350,000.

I don't see anywhere on the "Asset Entry Worksheet" to input that $50,000 to increase the basis. Seems like the logical place would be to cite $350,000 for 'Total cost when asset was acquired', but that is not an accurate description. Maybe if this line was modified to 'Basis when asset was placed in service' or some such.

[AnnetteB6]

Using the desktop version of TurboTax, when you go through the step by step method to add a newly converted rental property to your return, there is a series of questions you will be asked about the property so that the program can determine the correct amount to use for depreciation.  The questions will include things such as the original purchase price, purchase date, date it was converted to a rental property, improvements made prior to the conversion, the value of the land, the fair market value of the property when it was converted, and others.  All of this data is needed to determine the correct basis for depreciation.  

Then, using all of the data you entered, the Asset Entry Worksheet that you see in Forms Mode will be populated with the proper amount used to depreciate the rental property.  You should not be entering this information directly into the form using Forms Mode or the final result may not be accurate.

If you did not see this series of questions as you got started in the rental income and expenses section of your return, you may need to start this section again so that the details can be entered and taken into account.

[bn1977]

Unfortunately, the Step-by-Step for Depreciation and Amortization is not yet published, so at this time the only solution is using the Asset Entry Worksheet ... which leads back to the original question. I guess I'll find out in a few weeks where on the form this amount goes.

[PatriciaV]

Since the Asset Entry Worksheet is used for all rental property assets (whether purchased, inherited, or converted), the line descriptions are simplified for the most common type of property (acquired). Substitute "converted" for "acquired" when entering a property converted to rental use.

The basis for a converted asset is the lesser of FMV or the Adjusted Basis. The basis of real property is the total of acquisition cost, plus additions/improvements and settlement fees. Enter this total (or the FMV, if less) for the Total Cost When Acquired (Line 5 on the Asset Entry Worksheet).

[AmeliesUncle]

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@bn1977 wrote:

Seems like the logical place would be to cite $350,000 for 'Total cost when asset was acquired', but that is not an accurate description.

Maybe if this line was modified to 'Basis when asset was placed in service' or some such.

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Yes, that is where to enter it.

Yes, it is a poorly phrased description.