Home to rental conversion and depreciation

[slara22]

I converted my home from personal use to rental in August 2021, and rented it for fair market value for 139 full days. I have a question from the “Rental Asset” section:

When asked if I have used this item 100% for this business since I acquired it. Should I be answering:

1. YES, I’ve always used it 100% for this business (does this refer to the time since I started renting it? So rented 100% of the time in those 139 days), or,
2. NO, I have not always used this item 100% time for this business (since I converted it from personal use in 2021). In this case, for the percentage of time I used this business in 2021 question–would I enter 100% as I rented it 100% of the rental time? Or 39% because that was the percentage of days within the year that I rented it?

I am seeing that if I respond I’ve always used it 100% time, my estimated expense for the asset doubles (and greatly minimizes the rental income, thus my due taxes). Though this might be a good thing, it doesn’t sound right to me that the rental income goes down so drastically. Does this make sense?

In the latter case, could I be being credited for depreciation for accumulated years? Would it make a difference if I had a similar situation 12 years ago when I also rented my home for 2 academic years and claimed depreciation? I didn’t see a place to enter that information, though.

Thank you very much for your help!

[ColeenD3]

No, you have not used it 100% for business since you converted it from a personal home. Your basis for depreciation will be the lower of the FMV or the adjusted basis at the time of conversion.

[slara22]

Thank you. TT only asks about the percentage of time the rental has been used. In my situation, is it ok to respond:

-Purchased this asset (though it was in 2005)

AND

-Have NOT always used this asset for business, and used it 39% for business? PICTURE BELOW.

Thank you!

[DianeW777]

Yes this is correct for 2021. When you enter the date placed in service then TurboTax knows the amount of depreciation to use.  When you converted it to rental use in 2021, it was used 100% of the time for rental purposes from that date forward.  

[slara22]

So @DianeW777 , just to confirm, I should be entering that it was converted from personal use,  I should enter the date it was placed in service (and TT calculates depreciation), and then i should enter that I used 100% of the time since placed in service (not 39% as in the picture above) Correct? Thank you so very much!

[DianeW777]

Yes.  In 2021 the rental usage is 100% because from August it was used 100% of the time for rental purposes.  I appreciate the clarification for you and your patience.

[Edited: 04/06/2022 | 1:23p PST]

[slara22]

Just to say thank you @DianeW777  for your help. it is clear now.

[Carl]

I highly recommend you double-check the depreciation amount for 2021. Most likely, it is wrong because some of the information provided in this thread is easy to be incorrectly understood. See IRS Pub 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf and use the worksheet on page 37.  For line 6 you'll use table A-6 on page 72.

[Anonymous_ · Accepted solution]

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@slara22 wrote:

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Change the 39% to 100% since you used the property for rental use 100% of the time since 8/15/21.

To prove the foregoing is correct, multiply your basis by 1.364% and compare the resulting figure to the one calculated by TurboTax at 100% usage.

[slara22]

Thank you, @Anonymous_ I'll check this out. I appreciate you highlighting this.

[slara22]

Thank you @Carl  i will check this out. I really appreciate your help!

[Carl]

When you find that what you figure is different from what the program figures, change the business use percentage in the program to 100%, as that's what it's supposed to be. (Read the small print on the screen that asks for business use percentage, and you'll see why.)

[slara22]

Thank you so much, @Carl . I checked this out and yes, I think the information you provided is the correct one. Thank you so much.