Rental property and depreciated improvements

[Sharon 3]

I have not rented my property for some time.  First due to extensive repairs and updates.  Then a bad applicant scared me into just sitting tight.  Then a huge tree fell on the garage during an incredibly hard storm.  Then covid19 and Landlords being unable to collect rent.  I depreciated the necessary updates the first year, but after that, since I was making no effort to rent it, have not listed anything on my taxes for the property.  Is this the proper way to handle taxes on what used to be a rental?

[Carl]

Is this the proper way to handle taxes on what used to be a rental?

There's not enough details to help you make that determination. Basically, I need to know the date you decided to no longer attempt to rent the property out. Then we can go from there.

[Sharon 3]

Due to the many issues that came up, that is hard to say, but the final straw was the tree that came down May 2020, combined with the Covid19 issues.  So final answer May 2020.  

[Sharon 3]

I should also explain that on my 2019 taxes I did not claim the property as rental because it had been vacant so long due to restoring and the bad tenant scare.  One year ago I was actively seeking a tenant, had hired a property manager who was advertising it for rent.  Then the tree and covid.  I know I should sell it, but it was my grandma's and it is hard to let go of.

[Carl]

First, you didn't identify what version of TTX you are using, as it really matters for your situation. So are you using the online version of TTX? Or the desktop version that you installed on your computer? I also need to know what version you used for your 2019 as well as 2018 tax return. This way, I don't waste time providing guidance and details for the version that does not apply to you. Doing so will most likely confuse you beyond all hope. (Been there, done that, got the T-Shirt)

So final answer May 2020. ......  I should also explain that on my 2019 taxes I did not claim the property as rental because it had been vacant so long due to restoring and the bad tenant scare.

Thanks for that clarification. That helps tremendously. It also raises more extremely important questions.

What is the last tax year that you reported this property on SCH E of your tax return?

hired a property manager who was advertising it for rent.

Assuming that occurred in 2019, you may want to consider amending your 2019 tax return to include this, along with other rental property expenses (outside of improvements) that you paid for in 2019. (Just because you didn't have an active renter in 2019, does not mean you can't claim any rental expenses incurred.)

Understand that no matter what we/you do here, this is not going to be "simple" per-se. But amending your 2019 return to include the SCH E will be significantly "simpler" among the two options available to you at this point. I can explain the options if you like. But it will be a rather long post if I do that, and I'm trying to avoid two things.

1. providing more information than you may care to know.

2. Confusing you beyond the point of understanding and recovery from said confusion.

[Sharon 3]

I'm using TTX Premier, always do, purchased & downloaded from disc.

The advertising and actively seeking a tenant was just one year ago.   Prior to that I had read that if a rental was empty and you were not actively seeking a tenant, you could not claim deductions. That is why I did not claim any deductions on it for my 2019 filing.  Due to the bad tenant scare, (she was a piece of work that my attorney put an end to), I had not been seeking a new tenant.  The last year I claimed was 2018.  

If I keep it and begin renting it again, am I going to cause myself problems by not claiming any deductions for these 2 years?  I'm not so much troubled with not claiming anything for that period of time.  I just don't want to cause alarm and be audited for being overly cautious. 

[Carl]

Glad to hear you're using the CD version of TTX, as I use the CD version myself. Makes it easier for both of us.

The last year I claimed was 2018.

My apologies, as I don't think I was being clear. I take it personally that I make absolutely certain I give you the correct information. Additionally, when I think you have choices, I also like to ensure you have all the information necessary so that you can decide what is the best choice for your specific situation. So lets see if my assumptions are correct.

- Did you convert the property from residential rental real estate to personal use on your 2018 return or 2019 return? I would assume you did so on your 2018 tax return. But probably not since you had no way of knowing in 2019 (when you filed the 2018 tax return) that you would not be renting it for the entire 2019 tax year.

This is a big deal for tax purposes, especially in the tax year you sell or otherwise dispose of your ownership in the property.

If you did convert it, then knowing which tax year that occurred will enable us to confirm that you did the conversion completely and correctly. Most people don't read the small print on the screen with "I converted this property from rental to personal use in <tax year>", and therefore don't complete the conversion process on the tax return. This throws the depreciation off; sometimes quite significantly.

Additionally, do you still have the TTX 2018 and 2019 programs installed? Do you also have the .tax2018 and .tax2019 files on that computer?

Do you have a saved PDF of the 2018 and 19 tax years, where you saved "everything"? (Not just the "forms required for filing" and not just the "forms to keep for your records")

It's highly possible we may need to reference those files in order to confirm things were done correctly and completely, if you can't be "absolutely certain" on that front.

[Sharon 3]

Carl,

Hi, sorry it took a month to get back to this.  Do you still have time to walk me through this mess?  

Sharon

[Carl]

@Sharon  I PM'd you before, and after a week of no response deleted it all. So PM me with the details from square one in a single message. Presently the details are to scattered throughout multiple posts, making it difficult to follow and catch up.

[Sharon 3]

Are you available, Carl?  My TT program was corrupt and I just got back into it.  

[AmyC]

Carl was recommending you amend sch E 2019 to claim the expenses and was probably going to say that for 2020 to claim expenses as well. Since you were actively trying to rent when a tree and COVID happened. You can claim expenses. You are Carl must have had more conversations though in other threads.

@Carl your insight is welcome and desired