Rental house depreciation recapture - house purposely not rented last few years before sale

[robw9999]

Hi everyone - My family sold a rental house in 2019 which had been rented out from 1991 until 2013 when the last tenant moved out. We never intended to rent the house back out after that point – just repair it and sell it. Due to illness in the family the house sat for a few years until we got around to getting the repairs done and finally selling it last year.

My Question is:

Should we have been continuing to depreciate the house even as it sat empty for those last few years before selling knowing we weren’t going to re-rent it? We just want to make sure we handle the recapture correctly.

Thank you!

[KrisD15]

Yes, until you converted it, you should have continued to claim the depreciation. 

If you filed for 2013 and at that time reported converting the property to personal use, the depreciation would have been recaptured on that tax return. 

If you did not do that, and it sounds like you didn't, the IRS would most likely take the stand that it was still a rental until you sold it. 

• You can amend your 2013 tax return and convert the rental to personal if it results in tax due (and most likely it would, there is no time limit on amending to pay tax)
• You can recapture depreciation, including years 2013 through the date of the sale, whether you actually claimed that depreciation. In this case, you can amend the last three tax years to claim the depreciation. If you made improvements and/or repairs, these could be expenses or capital improvements reported on the amended returns, or they could increase the basis of the rental property. 

[robw9999]

Thank you so much KrisD15!