Converting an old rental that is currently personal use back to rental

[vinodr777]

I rented out 2/3 of my home for some years in the past and claimed depreciation and expenses on it.

I then converted to home to personal use and I lived in the home for a couple years.

Last year, I rented out the home again, but this time I rented out the entire home.

Few questions:

1. Will I have to enter this as a new home in Turbotax or should I continue the old rental somehow
2. For depreciation, @Anonymous_ mentioned before that I will need to re-calculate the fair market value of the home or the adjusted basis and deduct any depreciation I have already claimed when it was a rental before. Does this reset the depreciation period of the home to be the full 27 1/2 years based on this new value?
3. Does moving from a 2/3 rented home where I only used 2/3 of depreciation to now 100% renting home affect how the deprecation will work with this new rental?
4. How would I go about doing this in the turbotax product? Will it prompt me with the right question/autofill (e.g how much depreciation was used before) or will I need to enter some things manually?

@Carl @Anonymous_ I've gotten answers about this depreciation from each of you in previous discussions, so definitely value your input if you have any thoughts on this scenario. I did not find other discussions about rental -> personal use -> and then back to rental.

[Anonymous_]

@vinodr777 

TurboTax, frankly, will not be much help here; you will have to enter the property again after taking it out of service.

You do need to calculate your adjusted basis (which would include prior depreciation) and then use the lesser of that value or the fair market value on the date of conversion (or re-conversion) to rental use as your new basis for depreciation.

The recovery period would also reset to 27.5 years.

[Carl]

1. Will I have to enter this as a new home in Turbotax or should I continue the old rental somehow

You'll enter it as a completely new property.

1. For depreciation, @tagteam mentioned before that I will need to re-calculate the fair market value of the home or the adjusted basis and deduct any depreciation I have already claimed when it was a rental before. Does this reset the depreciation period of the home to be the full 27 1/2 years based on this new value

That's a more complicated way of saying what is really simple. Take the cost basis you used when you originally rented the home (or part of it) and subtract the depreciation already taken. That will be your new cost basis. Note that what you enter in the COST box will be that adjusted cost basis. What you enter in the COST OF LAND box will be "exactly" the same as you used before since land is not a depreciable asset. The program (not you) will do the math of subtracting the land value from the cost to arrive at your new cost basis for the structure. Then the program (not you) will depreciate the new structure value accordingly.

Depreciation will start over from year one, for the next 27.5 years.
Finally, note that it is up to "you" to keep track of the prior depreciation taken when it was 2/3 rental. The  program has no way of knowing that amount, or of keeping track of it. This will matter in the future when you sell the property, because you are required to recapture and pay taxes on all recaptured depreciation in the tax year you sell the property.  I suggest you write this information down and file it will your original purchase papers on the property that you received when you closed on the original purchase of said property. That way, you'll have it handy in the future when needed.

[Anonymous_]

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@Carl wrote:

That's a more complicated way of saying what is really simple. Take the cost basis you used when you originally rented the home (or part of it) and subtract the depreciation already taken. That will be your new cost basis.

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Of course, the above-quoted "less complicated way" does not take into consideration whether the adjusted basis is higher or lower than the fair market value on the date of conversion to rental use.

The new basis for depreciation would be the lesser of the two figures and the cost of any improvements made would be added to the adjusted basis while accumulated depreciation would be subtracted from the adjusted basis.

[Carl]

While not impossible, I seriously doubt the FMV of the property would be less than the adjusted basis  on the date of conversion. Last time I've ever seen or heard of that happening, was back in the 2008-2010 time frame when the housing market tanked. Over 10 years ago.

[Anonymous_]

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@Carl wrote:

....I seriously doubt the FMV of the property would be less than the adjusted basis  on the date of conversion....

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You can have all the "serious doubts" you want, but your doubts are groundless since we have absolutely no idea where this property is located nor how much was spent on improvements in the interim period. 

There are certain parts of the country where real estate prices have been essentially stagnant for years and, in some instances, have actually declined for any one of a number of reasons.

[vinodr777]

Thank you both for your help. This was a tricky situation (at least for me haha), but I'm sure this thread will help others understand how to handle this if they run into a similar situation.

[vinodr777]

One clarification that I wanted to make on the point @Carl  made is I think the COST and COST OF LAND boxes will have slightly different values entered into the tool this time time because I am renting the entire home out this time. It would be using the same underlying cost assessment as before but for COST OF LAND instead of being 2/3 of that value (since initially I was renting out 2/3 of the home), it would now be the total land value at that original time. Is that correct? Similarly the actual building COST value would be not the 2/3 cost value I entered, but the full cost value minus the depreciation already claimed.

Again this is under the assumption I am going with the adjusted cost basis being lower than FMV.

[Anonymous_]

You simply need to make sure the total cost is accurate (as well as the land value).

The figure you enter for the land will be subtracted from the COST (i.e., the cost is inclusive of the land value).

[Carl]

Looks like you've got this. But just to clarify again:
The figure you enter for the land will be subtracted from the COST

The subtraction from what you enter in the COST box is done by the program, NOT by you.

[Anonymous_]

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@Carl wrote:

The figure you enter for the land will be subtracted from the COST

The subtraction from what you enter in the COST box is done by the program, NOT by you.

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I understand that, @Carl; you quoted me not @vinodr777