How do you handle a rental property turned personal residence

[CharR]

My client did a 1031 exchange for rental property. They sold the rental in CA and bought a rental in AZ. They rented the property from 05/22 to 11/23. In January 2024 they took possession and it became their primary residence. When preparing their 2024 form 1040, there was no need for schedule E due to no rental income, but what do I do about the depreciation that is still calculating. Do I go into each asset and put the date in somewhere showing it converted back to personal residence?

[IRonMaN]

Print the depreciation report and hang on to it in the event they sell the property and then delete schedule E and all of the attachments (asset worksheets)

[BobKamman]

All I know is what AI tells me.

• IRS Focus on Intent:

  The IRS focuses on the investor's intent, meaning you need to demonstrate that you intended to hold the property for investment or business use, even if you later convert it to personal use. 
• 2-Year Safe Harbor:

  The IRS Revenue Procedure 2008-16 establishes a 24-month safe harbor, meaning they won't challenge your investment intent if you hold the property for at least two years before converting it to a principal residence.