Removing a rental home from the market

[mwweiner]

I stopped renting out one of my rental homes on the last day of 2022, taking it off the market and used it for personal use for all of tax year 2023. I entered that data on my 2023 tax program and it basically deleted that property from my Schedule E. It is now 2024 and I'm going to sell the property. I still have the depreciation worksheet from 2022.  It makes me nervous that the data was deleted entirely. After I sell the property I'll need to pay taxes on the capital gain.  What happens to the basis? Am I supposed to subtract the depreciation I took during the previous years of reporting income as a rental property? Will the TurboTax program generate a form showing that information? Did I mess this up?

[KrisD15 · Accepted solution]

You will need to compute the capital gain and depreciation recapture. 

Depreciation recapture is reported as Ordinary Income

Profit over that is capital gain. Since it was converted to personal use, there can be no loss. 

Example-

Purchased for 200,000

Depreciation taken (or could have been taken) 50,000

Sold for 300,000

Adjusted basis is 150,000

Depreciation recapture is 50,000

Capital gain is 100,000

Since this was no longer being reported as a rental activity, enter it under

Wages & Income

Business Items

Sale of Business Property START

Select "Sales of business or rental property that you haven't already reported"

Enter the "Sales of Business or Rental Property" on the following screen 

(this includes depreciation) 

Select the second option "Real estate that I took depreciation on"

Continue through this interview

The depreciation recapture will be reported as Ordinary Income 1040 line 8

Capital gain on 1040 line 7