Question

Conversion of Rental Real Estate to Personal Use

Forum|Forum|2 years ago
March 29, 2024
1 reply
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How do I confirm in the Forms section that a particular rental property has been converted to personal use? I don't see that anywhere in the Forms. I did the conversion in the Step by Step section but I like to confirm in the Forms.

Also, what happens near year? Does the real estate still appear in Schedule E now that it's converted to personal use?

What if it has carryover losses? How are those treated now that it's personal use?

Are the past depreciation expenses suspended until the property is sold? How is that tracked from year to year? Does the property have to remain on Schedule E for the tracking of depreciation to continue, or does that happen in a different form?

Carl11_2

First, I am making the following assumptions:
1. In the Property Profile section you selected the option for "I converted this property to personal use in 2023".

2) In the assets/depreciation section you worked through each individual asset listed, one at a time, and on each individual asset listed you selected the option for "I stopped using this asset in 2023" and you also selected YES on the "Special Handling Required?" screen.
3) If you claimed any vehicle use for your rentals, you worked through the vehicle expenses section and indicated that you "removed this vehicle for personal use".

Assuming you have done at least the first two, and the third one if it applies to you, you're good to go. However, this is one extremely important thing to note and do.
Once you have completed your tax return, filed it, and *AFTER* it has been accepted by the IRS, there are some documents in your 2023 tax return that you need to print out and keep *FOREVER* (Or at least until you sell the property.)
- Print out a copy of IRS Form 8582-Passive Activity Losses and file it with your existing property ownership records. If this form is not present in your 2023 tax returns, that just means you do not have any suspended/carryover losses. So don't be alarmed if the 8582 is not present. It's fine.
Form 4562. There are two of these for each property you own. They both print in landscape format. One is titled "Depreciation and Amortization Report" and the other is titled "Alternative Minimum Tax Depreciation". Print both and file with your property ownership records.
You will *NEED* these forms sometime in your future when any one or more of three things happens in your life:

1) You convert the property back to a rental or any other type of business use.
2) You sell or otherwise dispose of the property.
3) You die.

T

TaxCat1Author

thanks @Carl11_2 but could you also answer the other questions in the post? Thanks.

Carl11_2

If you're talking about any suspended losses you may have, you can't realize those suspended losses until the tax year you sell the property. Even if you've converted the property back to personal use, the losses remain suspended until the tax year you sell. That's one of the reasons why you need to print and keep those forms I mentioned previously. Those forms show your total depreciation taken up to the time you converted it to personal use, as well as your suspended losses (if any). Since the property was converted to personal use on your 2023 tax return, that property and all the information concerning it is *not* carried forward, as there will be no need for that property to be reported on SCH E on the 2024 return and beyond.