Sale of rental property: how to determine depreciation if the property wasn't technically rented last year

[sunshineyday27]

We purchased a home that was to be our main residence in November 2013. Instead, we ended up renting it from February 2014 - February 2018, at which point we put it on the market. TurboTax was used all of those years.

The renter stayed until July 2018, but the house was still not sold. The house did not sell until a year later: August 2019. In 2018, rental income was counted for January - July, and $0 income for August-December.

In 2019, we did not rent the house or try to rent it, because we kept thinking it was going to sell.

When I opened this year's TurboTax, I answered all of the rental property questions, including the one that asked if I rented it or tried to rent in 2019, which was No. After that, TT deleted the home as a rental property (since it was not rented and didn't produce income). I feel like all of the data that was kept in TT for all of those years is now gone?

I'm in another section now for Sale of Rental Property, and was able to enter the sales price and what I believe is the cost basis...but I do not know what to enter for Depreciation. I was hoping TT would have kept that information and auto-filled it for me.

Please help.

In addition: our divorce was finalized in 2019, so all proceeds were divided equally, including everything related to this property. In TurboTax, am I able to just divide all of these values in half? Having the same issue with regular capital gains and how to handle it.

[ColeenD3]

You should have a depreciation worksheet from 2018 in your records. Since you did not rent in 2019, it would be up to date. Otherwise you can look back at prior year returns. Depreciation is on Line 18 Schedule E.

[sunshineyday27]

Thank you! That's what I was thinking. But if I look in 2018's return, Schedule E line 18 is blank.

I have to go back and see if I have any older returns. I'm just reminded that my hard drive crashed last year just before tax season, so maybe I wasn't able to pull the old information from prior years into TT last year? 

[Carl]

In 2019, we did not rent the house or try to rent it,.......TT deleted the home as a rental property 

Bad programming on TurboTax's part. Extremely bad. Bottom line is, the absolute only way to be 100% certain you report things correctly, is to clear your 2019 tax return and start over from scratch. That is the only way possible to re-import all the data from the 2018 tax file. But since your divorce was finalized in 2019, that creates a completely new problem in that you flat out can not report the sale in the "sale of rental property" section anway. But it's perfectly doable if you know what you're doing.

After you start your 2019 tax return over from the start and reimport all the 2018 data, work through the rental property and do "NOT" indicate you sold it. Instead, show that you converted it to personal use on 1/1/2019. You have to work through each individual asset one at a time.

When asked "did you stop using this asset in 2019?" select YES. Then on the "Special Handling Required?" screen, select YES. (If you select NO, then you are FORCED to enter sales information here. You can't report the sale here because the program has no way possible of allocating half of everything to you.)

As you work through each asset, write down for each individual asset, the cost, prior year's depreciation and current year's depreciation (if any for the current year).

Once you've done this for all assets listed, finish working through the rest of the screens for the rental property. Then add up all your cost basis amounts for your total cost. Then add up all the depreciation amounts (prior and current year) for the total depreication taken. Then divide those answers by two and you'll report the sale of your half.

You will report this sale in the "sale of business property" section. Just work it through remembering you only get half the cost basis, and half the total depreciation taken.

Also be aware that by law, you are required to provide your ex spouse there share of the cost basis and their chare of the depreciation they get credit for.

[ColeenD3]

If worse comes to worse, you can calculate it yourself. See the IRS table below.

[sunshineyday27]

I had to take a break for a week, but now I'm back at the taxes.

When I click to handle the rental property, I'm given the following choices:

SOLD - I sold/disposed of the property in 2019

RENTED - I rent out part of my home -OR- I rent out a unit in a multi-unit property

CONVERTED - I converted from personal to rental -OR- I converted from rental to personal

CARRYOVERS - (none of these options apply)

If I only click the box for CONVERTED FROM RENTAL TO PERSONAL in 2019, I do not get an option to put the date.

When I click continue, I get the same options of 

--Yes this property was rented all year 

If yes, there is a question of the property being rented at a fair rental price yes/no - but I did not rent the property

--No this property was not rented all year

if no: "During the time the property was a rental, tell how many days the property was rented at a fair rental price vs used for personal reasons. Don't include days when the property was vacant."

Days rented at fair rental price (0 to 365)

Personal use during the year (0 to 364)

And a checkbox for "I did not rent, nor attempt to rent, this property at all in 2019"

So since there is no rental income, or if I put 0 as days rented at fair rental price, I'm back to the original issue of Turbo Tax wanting to delete all information on the property since it wasn't technically a rental.

Any advice?

[sunshineyday27]

Another point that might make a difference - my ex husband moved out of our main house in March when the divorce was finalized, and into the "rental" property until it sold.

[Carl]

When your ex moved out is irrelevant. You were legally married until the date the divorce was finalized. If that date was on or before Dec 31 of the 2019 tax year, then you can not file a joint return. Period.

The simplest way is to use my guidance above to significantly reduce the likelihood of human error on  your tax return on your part.

Under no circumstances and with no exceptions will you *EVER* select the option for "I did not rent or attempt to rent this property in2019". If you do, then you will be *FORCED* to delete that property from your 2019 tax return. Extremely bad program design on Turbotax's part.

[sunshineyday27]

OK, so it's ok to say yes I rented the place out for 1 day? I'm just not sure how to proceed past this screen and not have info deleted.

The reason for me mentioning him moving into the rental property: I thought maybe his payments on the house would be considered rent? but now that I think of it, you can't rent a property from yourself...so never mind!

[sunshineyday27]

OK, I just clicked that yes I rented the property "the whole year", because it said not counting days used for personal use. so since most of the year was personal use, I just marked "yes" for the "rest of the time", and now I have the screen where I can mark 50% ownership.

I just misunderstood part of the earlier directions. Thank you for your help!