Depreciation Questions in TurboTax

3 Replies

Hi everyone, first time posting here. I could use your help with the following two questions -

How do I enter depreciation on my taxes if my property was used as a rental, then my personal residence, then rented out again in the 2017 tax year? I am using TurboTax.

Do I:

- refer to the original depreciation schedule and pick up at the level of depreciation that correctly accounts for the years it was a personal residence (even though I didn't claim depreciation in those years)?

- refer to the original depreciation schedule but "pause it" so that I pick up depreciaiton as if no years had passed in between rental use (this doesn't sound correct, but it's an opinion I've come across in my research)

- start fresh and ignore the previous depreciation schedule, picking the lesser of an adjusted basis (original home purchase value minus land value + improvements) or fair market value minus land value

I have spent several hours looking at IRS publications and searching forums with mixed or no advice. Hoping the pros on here can share the facts, and also cite their source in light of a potential audit.

Finally, just a TurboTax question - what is it referring to when it asks me to list any "nondeductible expenses from prior years - operating/depreciation/AMToperating/AMTdepreciation"? Is this a way to put down the depreciation gap that I could have claimed if I hadn't converted the property to personal use in between rental years?

Thank you!

Joel

Joel:

I hate to see someone struggle like this.   I used to do this myself, so feel your pain.     

Please consider a CPA.  A CPA may seem more expensive, but a good one not only does your taxes but gives you personalized advice.  You will likely find that advice results in a financial benefit vastly exceeding the cost of the tax returns.  Also factor in the value of sleeping well at night and avoiding the constant desire to stab your monitor with a pencil.  It's worth it.

Thank you Greg,

I'm going to go that route. When I was trying to do it myself, I spoke with several CPAs and received different answers from each. One emphatically said that if I collected depreciation on my rental property but then converted it to personal use, my decision to "convert" it to a rental again meant I'd have to start with a new depreciation schedule. The other CPA said that I should continue with the original schedule, but only claim depreciation for the years it's rented. This seems to be what my HR Block software says. TurboTax is ambiguous.

I've contacted a CPA recommended on BiggerPockets and hope to speak with her sometime this coming week. Yes, it is definitely worth it. 

V/R,

Joel

@Joel Schanbacher

This appears to be a tricky question because this doesn't happen to often.

I would do the following if I was working on it.

I would report one activity on Schedule E for the property that you have listed.

Report the income/expense items ONLY when the property was listed as a rental property.
In regards to depreciation - I would list the asset during the year that it was a rental property and then I would "retire it". I would then put it back into service when the property is again used as a rental.

example.
1/1/2017 - 3/31/2017 used as a rental
4/1/2017 - 6/30/2017 used as a personal residence
7/1/2017 - 12/31/2017 used as a rental

Calculate depreciation from 1/1/2017 through 3/31/2017 and have the software calculate depreciation.
Retire the asset from 4/1/2017 through 6/30/2017
Then put the asset back into service from 7/1/2017 and 12/31/2017.

It is important to put the accumulated depreciation back into the asset because this is your adjusted basis when you plan to sell the future again.
Converting the property to personal and back to rental does not reset your basis.

Basit Siddiqi, CPA
917-280-8544

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