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Converting Rental Property back to Personal Property Use

brycat5

My tenant moved out at the end of 2023 where I only rented out my basement of my house. I had decided not to continue renting out any part of my property anymore in 2024 and would like to convert the basement section back to part of my personal property for personal use.

How do I do that when I file my taxes? Jumping directly into filing a Section E form, when I put down that I did not try to rent my property out for 2024 (after inputting 0 days of renting), the system asked me to delete the entire Section E form.

Do I only need to delete the Section E form and not report it at all for the 2024 tax year? Do I need to report that I "sold/disposed" of my property even though I am currently living at the property?

Would that also stop asset depreciation (the basement section of the house and carpeting) as well since I am no longer reporting a rental property?

Thanks for the assistance!

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Accepted answers

LynR

https://community.freetaxusa.com/discussion/comment/3309#Comment_3309

Sorry about that! You do not need to file a Schedule E for 2024 if you did not rent the basement at all in 2024.

KeriC

@brycat5 When you sell your home in the future, you will report the deprecation recapture since the home was partially used as a rental and was then converted to 100% personal use.

Since the home is no longer reported in Schedule E, the sale will be reported in our software under Income > Sale of Business Assets using the “Sale of Business Assets Converted to Personal Use” option.

All comments

LynR

Hello! Thank you for attending out live event!

Since you lived in part of the home while the other part was being rented, you will just need to keep track of all the depreciation that you claimed while you were renting out the basement. When you do sell your primary residence, the depreciation will count as gain when figuring your overall gain on the sale of your main home. Since there is an exclusion on the sale of your main home, you may not be taxed on the overall gain (including this depreciation) of your home if you meet the gain exclusion requirements and are under the maximum exclusion amount.

You can read about the depreciation recapture when selling your main home at:

https://www.irs.gov/pub/irs-pdf/p523.pdf

See page 17.

brycat5

https://community.freetaxusa.com/discussion/comment/3291#Comment_3291

Thanks for your answer regarding how depreciation works should I sell my house in the future.

Just wanted to double check on my main question: Do I even need to file a Schedule E form this tax year?

LynR

https://community.freetaxusa.com/discussion/comment/3309#Comment_3309

Sorry about that! You do not need to file a Schedule E for 2024 if you did not rent the basement at all in 2024.

brycat5

https://community.freetaxusa.com/discussion/comment/3352#Comment_3352

Great! That helps me out a lot!

If you have the time, I have another related question:
Would I need to be concerned about "selling or disposing section" of the Schedule E any time in the future? Is it only something I input when I file taxes in the future when I sell my house or do I not have to worry about it at all considering my house is now only a personal property?

KeriC

@brycat5 When you sell your home in the future, you will report the deprecation recapture since the home was partially used as a rental and was then converted to 100% personal use.

brycat5

https://community.freetaxusa.com/discussion/comment/3643#Comment_3643

Thanks so much for your explanation!

That should be all my questions for this tax year. Thanks again for your help, @KeriC and @LynR!

KeriC

You're welcome. We are happy to have helped!