Partial rental to full rental depreciation

[jummus]

Starting in Oct 2022, I rented out 2 rooms in my primary residence to tenants. In 2024, I moved out of the home in April and started renting out the entire house. I want to mark the original partial rental I set up in Turbotax as disposed in April 2024, and create a new full rental starting May 2024 that would account for the entire home. 

My understanding is that I would need to factor in the depreciation I already took through the partial rental when I set up the full rental, but I'm not quite sure how to do this. Specifically:
1) How should I find the amount of depreciation I've taken since 2022? I see in the "Your Property Assets" page under partial rental I set up that it tells depreciation amounts, but I'm not sure if this is only for 2023 or since I first started the rental in 2022?
2) How do I apply the depreciation to the new full rental? I see that it's asking me for information like original purchase price, fair market value, escrow fees, and improvements. How do I factor in the prior depreciation when filling out these fields?
3) I replaced the roof of the house in Oct 2023 and added that as an asset for my original partial rental. How should I carry that information (with depreciation) over when filling out my new full rental?

[DianeW777]

Yes, you can do that and you can follows the steps below to place the asset from 2022 out of service and then add your entire home as an asset for your rental property placed in service in 2024.  You can still claim depreciation for 2024 on the first asset if the 2 rooms was in use or available for use in 2024. 

Key Point: You must manually track the depreciation you used from your 2022-2024 tax returns for the original rental activity. You will need it when you sell later, possibly years down the road. There is no carryover to the new assets. 

For all assets related to the home when using 2 rooms for rental:

1. First use the Search (upper right) > Type rentals > Press enter > Click on the Jump to... link
2. Or Wages & Income > Rental Properties and Royalties > Update > Continue to Rental and Royalty Summary > Edit the property
3. Scroll to Assets/Depreciation  > Click Update > Select 'Edit' next to each asset
4. Edit beside each asset > Continue to the Tell Us About This Rental Asset
5. Select the checkbox beside 'This item was sold, retired, stolen, destroyed, disposed of, converted to personal use .... etc. > 
6. Enter the date it was retired or converted to personal use
7. Continue to the screen 'Confirm Your Prior Depreciation'  
   • The amount displayed is only for prior years and does not include the current year. 
   • Continue until you see the current year amount displayed and make a note to add the two amounts together
8. Answer 'Yes' to Special Handling. This should remove it from next year's return during import.

Once this is completed you can enter the entire home as a new asset with a date placed in service for rental use after you moved out. When it was available and marketed as such is the key date even if you did not yet have a tenant.  TurboTax will calculate the depreciation for the current year on both assets, one ending and the one beginning. It will not be duplicated.

The newly entered asset for 2024 Cost Basis: Include the original purchase price, purchase expenses and all capital improvements (your roof) as the cost basis for the house asset. Be sure to separate the land portion, enter the full amount and then land where asked. TurboTax will do the subtraction before calculating depreciation. You can use the tax assessments from the city or county to arrive at the percentage of cost that belongs to the land.

[jummus]

Thanks for the reply! Follow up question: suppose that instead of disposing of the original partial rental and starting a new one for the whole house, I decide to keep the original rental in use and create a new one that accounts for the rest of the house that I'm now also renting out since May 2024 (so for the original partial rental I was renting out 36% of the house, and the new rental I create would account for the other 64%). 

How should I go about setting this up this new 64% rental, particularly to also make sure I'm accounting for past depreciation from the original 36%? Also, how should I account for the roof when setting up the new 64% since I already added that to the original 36% rental?

@DianeW777 

[DianeW777]

It could be more confusing in time, however you can do what works best for your clarity. Do what makes the most sense to  you.

Keep good notes/records on what and why you are doing it.  Both of the assets should be under the same rental activity since they are the same property. Be sur to indicate 100% rental use and Yes to rented all year since that is what is taking place now.

Set up the new asset for the 64% portion. The new roof would be added as a new asset at 36% (sounds like you already did this portion) and 64% if that's how you want to set it up. 

[jummus]

Just to clarify, if I choose to go the 36%/64% route are you saying I should add the new 64% portion as an asset under the rental I already set up for the 36% previously? Or should I be setting up a new rental for the 64% (separate from the original 36% rental)? 

If I'm supposed to add the 64% as an asset under the original rental (and not as a separate rental), should I add 64% of the roof as an additional asset in the original rental as well? I've already set up an asset in the original rental for 36% of the roof, so in total I'd have 4 assets under this rental: 36% of the house, 64% of the house, 36% of the roof, 64% of the roof. Is that right?

If instead I'm supposed to set up a new separate rental for the 64%, should I enter 64% of the roof as an asset under this new rental? 

@DianeW777 

[DianeW777]

Yes, you would have four assets based on your choice to enter them separately. It's up to you if you want to actually separate the rental activities to make two instead of one.

[jummus]

After taking a look at your suggestions, I'm going to go with the original approach of placing the asset from 2022 out of service and adding the entire home as a new asset. Just so I'm 100% clear, this means I add the asset representing the entire home as an asset under the rental I already set up (by clicking Rental and Royalty Summary > Edit the property > Assets > Add an asset) rather than setting up a new rental representing the entire home (by clicking Rental and Royalty Summary > Add another rental or royalty), is that right? Currently I set it up the latter way, so if that isn't correct I'll change my setup to use the former way. 

And if the former way is correct, when I'm on the "Tell Us About This Rental Asset" screen and it asks me for "Cost (The amount you paid, which represents your ownership percentage amount)", does that mean my original purchase price + the cost of the roof? Should I include escrow fees as well?

@DianeW777 

[DianeW777]

Yes, you are 100% clear. You can do it exactly like that to have one rental activity for the same property, using the partial rental portion for the first part of the year, and then the entire property for the remainder of the year.  As a reminder, keep the total depreciation amount used for the two rooms from start to finish. This is all you will need later when you sell the property from that time period.