Transferred a property from personal joint ownership to an LLC with the same as members: Should I mark it as "sold" on 1040?

[judgedcm]

My wife and her sister own a rental (50% each). It was acquired in March, 2021. For 2021, we reported the income on Schedule E using Turbo Tax. Starting June 1, 2022, the property was placed in an LLC with my wife and her sister as equal shareholders. Our accountant is handling the K1's for the period from June 1 - December 31. He told us to use the actual income and expenses for the period January 1 - May 31 and the proportionate share of depreciation for that time period. I followed your advice and indicated a conversion to personal use on June 1, 2022. However, the expenses and depreciation come out wonky as it is reducing the actual amount of expenses and proportionate share of depreciation for the time period. What am doing wrong?

[Anonymous_ · Accepted solution]

Whose advice?

Regardless, converting the property to personal use should simply stop the depreciation of the property in the program as of the date of conversion.

[judgedcm]

I changed slightly how I entered the data. I indicated a conversion to personal use, and listed the number of days it was used as a rental before conversion as 151 (1/1-5/31) as the number of days used personally as "0". This solved the problem as to expenses, as the program assigned 1/2 the actual expenses to me. But, as to depreciation, it now shows 1/2 the total depreciation for the entire year, instead of 1/2 the depreciation for only the 5 months before the conversion. Please help.

[Anonymous_]

Please refer to the screenshot below (input the date you retired the property from use).

[judgedcm]

I just went back through it and I don't see that screen. I am going to type out a summary of the screens I see and the answers I gave for you to review, if thats OK.

[judgedcm]

Perhaps I don't see the screen because I added this property for my 2021 taxes, and once you do that you no longer see that screen?

[Anonymous_]

You should be able to go back and edit the asset in that section.