Handling depreciation for rental converted to primary residence, then back to rental

[igmcdowell]

I owned a rental, moved into it, then moved back out and started renting it again last year.

2014-2018: Bought property, used as a rental and deducted depreciation (3.5 years)

2019-2021: converted property to primary residence and did not deduct depreciation (2.5 years)

2021-now: property is again a rental

I put "Date placed in service" as the day I started advertising the property last year, since I'm converting it from personal use.

I'm trying to figure out how to correctly record depreciation going forward in Turbotax. I have my prior depreciation from 2014-2018 ($29k), and I do see line 10 on the Asset Entry Worksheet for recording "prior depreciation." I can fill that in, but Turbotax complains "Prior depreciation should be blank"

I'm also not sure how to adjust the asset life, given that it's already been used in some form or another for 7 years since I purchased it.  If I look at the Asset Life History, it shows the asset depreciating all the way through 2049, which seems probably wrong.

What am I missing? Thanks!

[M-MTax]

You'll probably have to keep your own records of depreciation because TTX won't do that for you when you keep taking rentals out of service and putting them back into service. 

When you take a rental out of service for, say, personal use, and then put it back into service as a rental depreciation starts all over again for 27.5 years BUT AT A LOWER BASIS to take into account the accumulated depreciation. This is a pain but it's the way it goes when you put the rental back into service.

[igmcdowell]

I see. So I just lower my basis by the prior depreciation, and restart the 27.5 year depreciation clock? That part still seems a little odd to me, but I'm not sure how else to account for it.

And then if/when I finally sell the property, the gain will be higher from the lower basis. I assume I also need to correctly report the prior chunk of depreciation at that time for accurate depreciation recapture, right?

[AmeliesUncle]

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@igmcdowell wrote:

And then if/when I finally sell the property, the gain will be higher from the lower basis. I assume I also need to correctly report the prior chunk of depreciation at that time for accurate depreciation recapture, right?

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The DEPRCIABLE Basis may be different than the Basis for loss or for gain.  TurboTax is NOT set up for that scenario, so you may want to go to a tax professional when you sell the property.