How should I enter expenses for a rental property taken out of service before the end of the year?

[arinrhart]

I had a residential rental that was rented out from 1/1/20 through 10/31/20. It was listed for sale on 12/1/20, but did not sell until 1/8/21. I know the expenses while vacant and listed in December are not deductible in 2020 because it was not available for rent at that time. What is the correct method on Turbotax to take only 11 months of the annual expenses (such as taxes) but 100% of other deductible expenses (such as repairs performed before it was listed)?

[DavidD66]

You are correct that you would only take 11 months of expenses (including depreciation) on Schedule E as Rental Expenses.  Property tax not expensed on Schedule E, would increase your basis, while repairs to get ready sell would be sales expenses, and reduce your proceeds.  They both have the same effect - a smaller gain.  The period is short, so the amounts will be small, so I would keep it simple.

[arinrhart]

I should not have to report any gain on the sale in 2021 (except for recapturing the accumulated depreciation) because I meet the ownership and use qualifications for excluding the gain from sale of a principal residence. 

For 2020, I know what I need to claim; I just need to know how to make TurboTax show the correct amounts on my schedule E. I believe I was able to get it to calculate the depreciation correctly by putting in the listing date as a "disposition" date for the Asset under the Rental Property Info.  To keep it simple on the other annual expenses, do I just need to calculate and enter 11/12ths of the expenses myself? 

[Carl]

To answer your question of...

What is the correct method on Turbotax

When you start working through the rental, a few screens in select the option to indicate that you converted the property from rental to personal use. Then just keep working through "as if" nothing changed.

Of course, in the expenses section you can only claim rental expenses incurred up to 10/31/2020.

Now when you work through the assets/depreciation section, you have to edit each individual asset listed, one at a time and work each one through.

- You'll indicated that you "stopped using this asset in 2020".

- You'll indicate that you converted the property to personal use.

- On the "Special Handling Required?" screen, you *must* select YES. If you select NO, then you will be *FORCED* to enter sales information. You did not sell the property in 2020, so you *must* select YES.

Note that you must do the above for each individual asset listed in the Assets/Depreciation section.

For property taxes and mortgage interest, if you elected to have the program do the splits for you, then one month's worth of property taxes and mortgage interest will automatically be transferred to the SCH A. So when you get to the Your Home section under the deductions and credits tab, make absolutely certain that you read "EVERY" "WORD" on every screen. It will inform you of the property tax and mortgage interest amounts that are "ALREADY ENTERED" on the SCH A for that property, for the period of time (1 month) it was personal use.