Terminating a rental property

[StewartM]

Here's what happened to me relative to a rental (referred to as Rockport) I've been taking income and expenses on for several years.  TT means TurboTax.

As I filled out the blanks I wasn't sure if Rockport should still be considered rental property so I tried to remove it from consideration this year. I still own it but it was damaged by Hurricane Harvey.  TT said it could not quite do that apparently because it was keeping info on the house from previous years.

I proceeded with the return entering all the other stuff and not doing anything with Rockport. At the end TT indicated that I would still owe about $1600. Then I went through the "check the return" thing in the wrap up and file section. It found a couple of things that the filing needed associated with Rockport.

I provided those things and looked back through TT. As a result of providing those two things, TT said I should be getting back about $1700 back, I assume because it was looking at the Rockport property but I don't know why the windfall. I did not go ahead and file.

Perhaps I should just go back and file it as rental property? Or, what happened that I don't understand and that this result would be expected?

[AmyC]

Depreciation is the first thought. It calculates when everything else is empty. However, Harvey was 2017 and this is 2020. 

If you claimed a casualty loss in 2017, you should have changed information on your return, or maybe you thought it would be fixed and rented again in 2018. You may need to amend 2018 and 2019. It sounds like Rockport should not be on your return. 

You can edit the rental, mark that is was converted to personal property. Change every asset to personal property. You will want to use Jan 1 2020 for the date of conversion.

[Carl]

damaged by Hurricane Harvey

Harvey was in 2017. If that property has not been rented at all since that time, then you probably need to amend your 2018 tax return and convert the property to personal use with a conversion date of 1/1/2018. That stops depreciation. Then 2018 would be the last year you would report this property on SCH E.

If you've been claiming/reporting it as rental property for 2018, 2019 and 2020 with no rental income, I would not be surprised if that raised flags with the IRS. That's because you're taking depreciation on business rental property for more than 2 years with absolutely no income produced by that property. There is no "2 year" rule or anything of the such. But claiming depreciation on rental property that has not produced any income in 3 years may get someone's attention for all I know.