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Lacerte Sch E Property Type when primary residence is converted to rental mid-year

pat
Level 4

There are three entry points for information when a primary residence is converted to rental end of year:

Sch E sc 10 - property type, Should I select Single Family Residence or Vacation/Short Term REntal?

Depreciation sc 22 - Form Schedule E (vacation home)

Sch E sc 18 - personal use days

Doesn't the home fall under the vacation home rules this year because they occupied it as their residence for 350 days? They rented for 16 days.

Are these the correct entries? Another tax preparer also suggested that next year, I delete this form and create a new Schedule E (rental) and enter the prior depreciation from 2020 into the new schedule for 2021since there will be no personal use in 2021.

I always appreciate your assistance.

Thanks.

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4 Replies 4
George4Tacks
Level 15

You stated "converted" which to me means at some point it is a full time return.

Enter as a SFR

Regular depreciation with a beginning date of the date of conversion. Be sure to use the real basis of the cost of home, improvements etc. DO NOT use the current FMV, unless it is less than basis

No personal days, since we are essentially starting a new full time return - #days = #days as rental, no personal.

Basically do this just like you would if they purchased a new property.

 


ex-AllStar
pat
Level 4

Really? You don't think the personal days in 2020 matter?  Can you explain?

The difference in depreciation is over $900. It will be a full time rental moving forward. 

 

I have entered expenses that should be allocated between sch a and sch e as indirect and the amounts are based on the number of days. So, no problem there.

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TaxGuyBill
Level 15

Since it became a rental, there has been ZERO personal days.

The number of personal days versus rental days is to prorate expenses for a property that goes back and forth between personal and rental use.  For a property that has been converted to 100% rental use, you only enter any personal days AFTER it was converted.

I don't use Lacerte, but in ProSeries you need to MANUALLY prorate expenses like mortgage interest and real estate tax for this first year.  You may want to check if Lacerte is the same.

rbynaker
Level 11

If you're confused already, referencing Section 280A is not exactly a cure . . .

https://www.law.cornell.edu/uscode/text/26/280A

The "conversion" piece is referenced in (d)(4)(A):

"For purposes of applying subsection (c)(5) to deductions allocable to a qualified rental period, a taxpayer shall not be considered to have used a dwelling unit for personal purposes for any day during the taxable year which occurs before or after a qualified rental period described in subparagraph (B)(i)"

So once you "flip the switch" and the unit is available for rent/rented you don't need to apply the vacation home rules to that time period.  In your case, sounds like that's 16 days.  The assumption is that you will meet the qualified rental period of 12 months but we won't know that until December.

Rick