TurboTax Business 2023: Remove/Dispose of rental property to convert to personal use

[DiannaD32]

I need assistance SPECIFICALLY with entries in TurboTax Business 2023.  All of the information in the forums included work arounds, but I need to know if I can remove a rental property from my business, as it is now being used as a second home.  The instructions online are for Home & Business, or Premier.  I need to know how to make the entries correctly in TurboTax Business 2023.

The rental was effectively our second home on 1/5/2023, and prior to that was used 100% as a rental since 2021.  Please advise.

[tagteam]

What type of entity? If this is a corporation (S or C), you have a problem.

I'm going to page Champs @Rick19744 and @mike9241 for further input.

[Rick19744]

Concur with @tagteam in understanding the entity type.

[DiannaD32]

It is a LLC, member managed with 90% myself, and 10% Hubby ownership.  The K-1's are entered into our personal returns. 

Thank you for answering my initial question so quickly.  That is greatly appreciated!

[AmeliesUncle]

It will be entered as the property was "distributed" from the business to you.  As Tagteam mentioned, that could have adverse tax consequences if it was in a corporation.

Does this business have other activity?  Or is it closed down now that the rental has been distributed to you and you need to file a "final" tax return?  If it was closed down, was it closed down on 1/5/23?

[EDIT] Weird, I didn't see any of the posts after Tagteam's post until after I posted my comment.

[tagteam]

@AmeliesUncle 

Me neither. I saw Rick's post but I didn't see @DiannaD32's post until you posted your response. There have been some issues with notifications lately so (????).

[DiannaD32]

Thank you for your response.  

The business doesn't have any current activity; however, I am planning to keep it open as we are actively looking for a rental property.  There was no "final" tax return.

"In TurboTax Business, the only option that makes sense is "This rental property was SOLD or otherwise DISPOSED of during this tax year." 

None of the other options are applicable.  

However, this doesn't feel conclusive or correct, but I am unable to find another way to move the property off the balance sheet.

When I search the TurboTax forums, I found these answers, but I don't know if they are correct, or how to execute within the program, if they are correct:

The Form 4797 is Disposition of Business Property, which includes the conversion to personal use. (It closes out the Schedule E for reporting). When you sell the property, you will have to account for the depreciation to determine the gain or loss (essentially it is suspended).

Thank you

[AmeliesUncle]

Can you confirm that this is taxed as a Partnership (Form 1065), rather than taxed as a Corporation (Form 1120 or 1120-S)?

Be cautious about looking at other answers in this forum because most questions and answers are referring to Individual tax returns (Form 1040).  Things are handled somewhat differently for Individual returns (Form 1040), Partnerships (Form 1065) and Corporations (Form 1120 or 1120-S).

[DiannaD32]

Yes, this is a form 1065.

Ownership is 90% myself, and 10% hubby.

There is no other issue with transferring the rental property, as it is going to be used by us for personal use. (no legal issues)  We only need to transfer it from the business.

[AmeliesUncle]

I don't use TurboTax, so unfortunately I can't give you specific directions for how to do it in the program.  But I can tell you some generalized information.

You would need to stop it being a rental in the program.  Saying you converted it to personal use would do that.

As I mentioned before, it also needs to be shown as a Distribution from the Partnership to you.  I am unsure how to do that in TurboTax.

For a Partnership, there should not be any direct taxable consequences of doing that.  Indirectly, the distribution to you would affect your Basis which could possibly be taxable (depending on the circumstances).

Perhaps somebody familiar with the program can give you the specifics of how to do that, or perhaps you could call Support.  On the other hand, in my OPINION most people should NOT be preparing their own Partnerships and Corporations in TurboTax because there are too many variables and complexities; I always recommend a tax professional for Partnerships and Corporations.

[tagteam]

I can state that the property needs to be treated as "disposed of" in the Rental Real Estate section of the program so that depreciation stops (for the LLC) on the date of the transfer. 

I believe the applicable checkbox is something like "disposed of by some other means".

Of course, as mentioned, a distribution (of property) needs to be made in the program and balance sheet adjusted (if one is being maintained).