How do I enter info on rental property on asset page when the rental was converted from the primary residence the 2nd time?

[yulud]

More info: I converted my primary residence into rental property in 2016. Then I moved back in 2020 (i.e., converted it back to primary residence). Now, I just converted it back to rental in 2024. What do I enter as the cost, cost of land etc on the asset page? should I enter the cost when I first bought the house?

[DianeW777]

It depends. The correct amount is the amount you used originally for the home and land. Currently, if you had any capital improvements during the primary residence period you would add a separate asset. Enter the current date in 2024 for the date placed in service.

• Cost Basis: Property converted from personal use is rental use must use the lesser of:
  • Actual cost
  • Fair Market Value (FMV) on the date of conversion
    • Real estate rarely decreases but rather increases in value over time so cost is used for depreciation
  • Enter the full cost and then only the land when asked. TurboTax will reduce the depreciable basis by the land when doing the calculations. The tax assessment will provide the ability to determine land and building cost basis (take the land assessment divided by the total assessment to arrive at the percentage of cost that applies to land. 

In TurboTax, search for rentals and select the Jump to link at the top of the search results.

1. Follow the on-screen instructions as you proceed through the rental and royalties section.
   • On the Rental Summary screen, which is where you enter your rental income and expenses, Add expense or asset
2. When you enter your rental house as an asset be sure to select Residential Rental Property, then follow the screen prompts to enter all the details
   • Where do I enter income and expenses from a rental property?

Note: You must manually track all depreciation used in the past and from 2024 forward. It will be important when and if you sell it in the future. Keep your past and present tax returns for proof of actual depreciation used.

[yulud]

@DianeW777 Thanks for your quick response. 

I have some follow-up questions: I financed my original purchase. I believe the finance cost (like closing cost) should be included in the cost of the rental property. When I first converted the property from primary to rental, I had refinanced as well. So the closing cost for the refi would be included in the cost. I've since refinanced again after the property was converted back to primary residence. Should the closing cost for the latest refinance be included in the cost again? 

Also, since this is the 2nd time it's becoming a rental property, when Turbo tax calculate depreciation, would it take it into account the previous depreciation schedule or start as if this is the first time the property is a rental? If it's the former, how does it do it? Do I have to enter something?

Regarding tracking the depreciation, where do I get that information? I've used Turbo Tax for many years, and when I download the final tax filing PDF, I don't see the actual depreciation amount. 

[DianeW777]

It depends. See the list below of allowable additions to the cost for the original loan and any refinanced loans costs. Any capital improvements should be added to the cost if any of the refinance funds included capital improvements in addition to the payment of the original loan. 

Any interest on the refinance loans will be deductible on the rental. For the current year be sure to manually prorate the amount for rental, and personal (real estate taxes, mortgage interest, insurance, or any other applicable expense that applies to both). The rental should indicate it was 100% rented all of 2024 and at fair rental value (FRV) assuming the rent being charged is FRV for your area.

If you enter a 2024 date placed in service the depreciation will begin in that month for the current year, as it should. Unless this property was rented in January, you must enter the appropriate date. TurboTax will then be able to calculate the correct amount for 2024. It will start as though this was the first year. This is also the reason for the manual tracking of the past that will be needed in the future.  

Government Recording and Transfer Charges 

• Recording fees
• Title Charges
• Lenders Title Policy
• Settlement or Closing Fee
• MLC - Municipal Lean Certificate
• Title Exam
• Owners title Insurance

You can include these closing costs and add them to the cost basis of the property as noted above.

Loan charges - Loan charges are part of the loan, not cost basis

• Application fees
• Lender fees
• Appraisal Fee
• Inspection Fee
• Condo Questionnaire
• Credit Report
• Debt Report

You can't include in your basis the fees and costs for getting a loan on property.

[yulud]

@DianeW777 Thank you! This is clear. I think I know how to enter the information for this year. 

However, I am still at a loss as to how to get the depreciation Turbotax calculated for me in the past. As I mentioned, the tax filing itself doesn't include the details, it only has the final taxable amount for the rental property. 

[DianeW777 · Accepted solution]

It's very easy. If you don't have your tax file, but you do know the cost you used for the home when it was rented before you can use the chart below to easily calculate the depreciation you used in the past when you need it. This chart has been used since 1986 and no current thought for change. It can also be found in IRS Publication 946.

@yulud 

[yulud]

@DianeW777 This is great info since tax returns for some of the earlier years are no longer available either on Turbotax or through IRS.