Trying to remove a rental property?

[drewcheek]

home rented previous tax year

[KrisD15]

You will need to "dispose" of it. 

Enter any income or expenses for 2021 in the rental section first

Click DONE

Revisit the rental section

Select EDIT for that property

Scroll down and select Sale of Property/ Depreciation

Select Asset Summary

Select Edit for the property 

Continue through the interview and report the property as converted to personal use or sold

[Carl]

Start working through Rental & Royalty Income (SCH E). One of the screens near the start will have a selection on it for "I converted this property from a rental to personal use in 2021". Select it.

Continue working it through "as if" nothing changed

When you come to the summary screen you will enter all of your rental income and expenses, even if it's zero. Then you MUST work through the "Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were converted to personal use).

Basically, when working through an asset you select the option for "I stopped using this asset in 2021"

When prompted for the disposition date, enter the date of conversion to personal use. Typically, this is one day after the last renter moved out.

On the "Special Handling REquired?" screen, read that screen to understand why I am telling you to click YES. Then click YES. If you click NO then you are "forced" to enter sales information. You did not sell this property, so click YES.

Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use".

After your completed tax return is accepted by the IRS, you will need to print this return because there are certain forms you will need to keep, as you "WILL" need them at some point in the future when any one of three things happens in your life.

- You sell the property

- You convert the property back to a rental

- You die.

When you print the return, there are two Form 4562's you need to file away with your original purchase paperwork on the house. Both 4562's print in landscape format. One is titled "Depreciation and Amortization Report" and the other is titled "Alternative Minimum Tax Depreciation Report".

Another form you will need to keep is IRS Form 8582-Passive Activity Loss Limitations. Again, file this with your original purchase paperwork you received at the closing when you originally purchased/acquired the property. You "will" need it at some point in your future.

Now, if the IRS Form 8582 is not present, that's okay. That just means you don't have any passive carry over losses. Therefore, you have no need for the 8582 and the program will not generate a form you do not need.

[SnowinApril5]

I have a similar issue: I converted our rental last year 2020 to personal use. I "stopped using the asset as a rental" & I went through the asset/depreciation categories last tax year to convert them to personal use instead of rental. I saved a printout of all the forms for future info for when we sell the house. 

This year it is still listed in the rental area. My concern is that it still has a depreciation amount attached to it that is pulled from last years info. It's only $170 but the fact that there is an amount is my concern.  I think I must have missed something when I was going through all the different parts to convert them. I'm not sure what this means for moving forward.

Do I need to go back to last years return and amend it?  Can I ignore the small amount?

We are planning on selling the house in a few months as that would be the 2 years of 5 as having it converted back to a personal use house. Does this affect the 2 year part? 

I was trying to figure it out (for this year) and entered the usage as 0 or something similar and the entire thing disappeared. It no longer lists the house at all. Basically it deleted it from the return.

 It changed the amount of the return/owing by about $3000, so I know it did something major. I did have loss carryover that was suspended attached to that house from last years return but I thought it wasn't a factor since I had said it was no longer a rental. 

I'm not sure if I need to start over since it is now deleted or if I want to delete it anyways??

Am I supposed to delete that rental house & info the year after converting it?? 

I'm very lost at this point as to what to do. I have searched and tried to read threads explaining all of this but I am still very confused how to move forward.  HELP  

[ColeenD3]

Since there was no rental use in 2021 and you have all the pertinent records, you can just say you did not attempt to rent in 2021. This will remove it from your return.

[Carl]

This year it is still listed in the rental area. My concern is that it still has a depreciation amount attached to it that is pulled from last years info. It's only $170 but the fact that there is an amount is my concern. I think I must have missed something when I was going through all the different parts to convert them. I'm not sure what this means for moving forward.

Normally, I would expect it to show nothing for depreciation, and would then tell you to just delete the rental property. But that $170 amount is there for a reason, and you need to find what that reason is.

Do I need to go back to last years return and amend it?

To early to tell at this point.

Can I ignore the small amount?

I would not. At least not yet. Take a look in the assets/depreciation section to see if you can identify what asset(s) is/are showing depreciation more than zero. You "may" need to work through each asset one at a time to find it. Pay attention to detail as you work through each asset. I'm wondering if you marked an asset as converted on 12/31/2020 and maybe the program using the mid-month convention incorrectly figured depreciation to 1/15/2021. With such a low amount, that's what it looks like. But we need facts.

Let me know what you find.

Since there was no rental use in 2021 and you have all the pertinent records, you can just say you did not attempt to rent in 2021. This will remove it from your return.

When it comes to IRS matters, don't guess anything. Especially don't just remove it from your return yet, until you "Know" what's going on here.

[Carl]

@SnowinApril5 something I just thought of a few minutes after posting my previous response.

Take a look at your 2020 form 4562 that prints in landscape format titled "Depreciation and Amortization Report".  Does it have an "amortization" section on it, with something listed for that? See image below.

Par chance, does it show the amount in question in that row if an item is present?