How do I indicate conversion of a rental property to primary residence, if I purchased the property, rented it, and converted it in the same year?

Forum|Forum|4 years ago
February 27, 2022
2 replies
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I purchased a rental property in March 2021 and continued to rent it to the existing tenant. In December 2021 the tenant left and I moved into the house as my primary residence. Where do I indicate the date on which the home became my primary residence in TT?

Here is the timeline:
• Date acquired

TurboTax Premier Online

DanaB27

You will be able to enter the date on which the home became your primary residence when you are working on the asset entry of the house:

Login to your TurboTax Account
Click on "Search" on the top right and type “rentals”
Click on “Jump to rentals”
Continue until the “Tell us about your situation this year” screen and select “Converted home to rental or rental to home”
On the “How was house converted?” screen select “From rental to primary residence”
Continue through the questions
When you are working on your assets (house) on the “Tell Us More About This Rental Asset” screen select “The item was sold, retired, stolen,… converted to personal use,….” and you can enter the day you converted the property to a personal residence.

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chriswa1Author

The instructions from DanaB27 are very helpful, and this is what I would like to do. However, in step #7, I never see a “Tell Us More About This Rental Asset” screen. Instead, TT gives me a "Tell us more about your purchase of The-Rental" screen and then asks a series of questions about cost basis. I assume that's because I purchased the rental property in 2021. I would like very much to indicate that the asset was converted to personal use... but I don't see how to get TT to show a screen where I can provide that info.

Carl11_2

Employee

Let's start from the beginning. Delete the property entirely in the Rental & Royalty summary screen. Then start adding it anew.

On the Screen "Do any of these situations apply to this property?" select 2 of the items on that screen.

- 2021 was the first year I rented this property

- I converted this property from a rental to personal use in 2021

Click Continue

On the screen "Was this property rented for all of 2021?" select NO.

- For days rented, the day count starts from the closing date of your purchase, and ends one day after the renter moved out. That date is also your date of conversion, which you will enter later.

- For days of personal use, enter the digit ZERO.

Click Continue

Continue working things through to complete the property profile section and enter your purchase/acqusition information.

- Where it asks you to enter your "Original purchase price (including land)" enter your contracted sales price.

- Available date is the closing date of your purchase

- Purchase date is the closing date of your purchase

Click Continue and keep working it through.

- Property tax valuse are "NOT" what you paid for the property. Those are determined by your county property tax assessor. You should be able to find those on line on our property tax appraiser's website. They will be "LOWER" than what you paid for the property. Usually 30% lower, give or take.

That will be the final thing you deal with in the property profile section.

Work through rental income and enter the rental income recevied.

Work through rental expenses and enter only those expenses incurred "BEFORE" you converted it to personal use. The only expenses I would expect you to be entering here are insurance, real estate taxes and Mortgage interest. You could have other expenses. But depending on how long it was after you purchased it, that the last tenant vacated, you very will may not.

After expenses, edit the Assets/Depreciation section and if offered, elect to go straight to the summary.

On the "Your property assets" screen you will see the property itself listed there. Click the Edit button to work this through and change things.

About 4 screens in you're at the "Tell us more about this rental asset" screen. Select the following:

- I purchased this asset new

- This item was sold, retired, stolen, destoyed, disposed of, converted to personal use, traded in, or given away.

- For "date you sold/retired from use" enter the date of one day after the last tenant moved out.

- Select "YES I HAVE ALWAYS USED THIS ITEM 100% FOR BUSINESS" (seems wrong I know. But it is not wrong)

Click Continue

- On the "Special Handling Requred?" screen, read the information on that screen to understand why I am telling you to click the YES button. Then click the YES button. (If you click NO then you will be "FORCED" to enter sales information. You did not sell the property. So click YES.)

Now finish working through the rest of the rental section, and that does it. The property and it's assets (of which you only have one asset) are converted to personal use. You're done.

Carl11_2

Employee

Take note that since it was rented for less than a year, it's considered a "vacation rental" and not a full fledged rental property. Your personal use day count starts on the date you moved in at the latest, and those personal use days will reduce your deductible rental expenses allowed on the SCH E. Additionally, since you rented for less than a year, you are not required to take any depreciation on the property, and I highly recommend that you don't.

Anonymous_

Employee

A couple of notes:

Merely because the property is rented for less than a year, does not make it a "vacation rental". The IRS, in fact, does not have an actual definition of "vacation rental".

The scenario set forth indicate that rental period was less than a year and that the property was converted to personal use for the last month of the tax year. As such, expenses not directly related to rental use (during the rental period) have to be prorated.

Further, depreciation is not a requirement; it is "allowed" per Section 167. Depreciation on property held for business use or for the production of income is recaptured based upon depreciation deductions allowed or allowable.