When is a rental property considered out of service?

Forum|Forum|3 years ago
February 19, 2023
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This has come up because I had a rental property (single family residential condo) that was sold in 2022. The last tenant moved out on 08/31/2022 and the sale was closed on 11/21/2022. During that time the property was vacant, I did NOT use it for personal reasons.

Turbo Tax asks when the property was out of service or sold, as if they are the same. If I put in 08/31/22 then it lists the sale date as 08/31/22 on Form 4979, which is not correct. It acts as if I cannot have two different dates for out of service and sold.

So my question is technically is it out of service on 11/21/2022? Is that the proper thing to do as far as the IRS is concerned.

Thanks in advance. I'm using TT Deluxe.

Best answer by DawnC

Right, zero personal days should be entered. And yes, you should pro-rate the expenses on Schedule E for the time the property was a rental. The remainder of the real estate taxes can be deducted as a personal expense on Schedule A if you itemize, but not the HOA fees - only the rental portion of those fees are deductible.

mglauner

If your last tenant moved out in August 2022 and you were no longer holding your property out for rent, you could indicate in TurboTax that you 'converted to personal use' in the Property Profile section. It is not unusual for a property to be taken off the rental market, then fixed up prior to selling it. It doesn't mean that you lived there, it just means it was no longer a rental.

Report the Sale Date in the Assets/Depreciation section. Indicate that you 'rented all year' (meaning time it was available for rent). Say Yes to 'Special Handling'.

Then in the Search area, type 'sale of business property' and click on the 'Jump to sale of business property' link. EDIT Copy 1.

If you made improvements to the property prior to sale, be sure to add them to the remaining Cost Basis when reporting the sale. Enter the amount of Prior Depreciation TurboTax displayed for you in the Rental Section earlier.

The sale is reported on Form 4797.

If you lived in the home prior to renting it, you may be able to exclude all or part of your gain. Here's more info on Excluding Gain on Sale of Rental Property.

If you had a loss, here's details on Selling Rental Real Estate at a Loss.