How to place rental property out of service, with intent it will be put back in next year?

[ThatTaxGuy]

Have a client that has had a rental on the books for several years. Tenent moved out on 6/30/2022 and client moved into the house "temporarily." The temporarily ends next month, on 4/1/2023, when a new tenant is moving in. 

I have income and expenses for the time the property was rented. However, I am unsure how to adjust depreciation in ProConnect. I do not want to dispose of the asset on 6/30/2022, because they are putting it back in service in 2023. 

Is there any other way, or is this just how I have to enter it?

[itonewbie · Accepted solution]

This workaround will get you the correct CY depreciation.  It won't reflect the date of retirement on the depreciation but will get the assets rolled over to the following year (as opposed to entering a retirement date, which will prevent the rollover).

1. Under Deductions > Depreciation for each of the assets, click on the Auto & Additional Info. tab;
2. Scroll down to the Additional Information section;
3. On the line Number of months in short year, enter the exact number of month for which depreciation should be computed.

For step #3, you must take into account the applicable convention.  For example, if it's mid-month convention, you'd have 5.5 month based on 6/30.  In this case, if you were to enter 6 months, ProConnect Tax will compute depreciation for a full 6-month.

On the depreciation schedule, no date will appear under Date Sold and Rate will still show the full year's percentage.  However, Current Depr. will show the correct amount based on 5.5 months in this example.

Similarly, 2023 Depreciation Schedule will show the correct amount of accumulated depreciation.  But you will apparently need to account for the lower of FMV and adjusted basis when it's back in service.

[ThatTaxGuy]

Hey Itonewbie

Thanks for the great explanation. That will work for my needs!

Let me know if what I'm thinking is in line with what you wrote in the final paragraph below. My guess is that you mean that even though only 6 months of depreciation was taken, in 2023 ProConnect will see the depreciation to be taken that year, as if a full year of depreciation was taken in 2022. Correct?

[itonewbie]

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@ThatTaxGuy wrote:

My guess is that you mean that even though only 6 months of depreciation was taken, in 2023 ProConnect will see the depreciation to be taken that year, as if a full year of depreciation was taken in 2022. Correct?

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Nope.  It's better than that.  2023 ProConnect Tax will have all of the accumulated depreciation through 2021 + 2022 depreciation allowed on the return.  You will see these details on Next Year Depr. (Regular).

[ThatTaxGuy]

Ahhh... Fun, thanks for the heads up.

[itonewbie]

NP, @ThatTaxGuy.  If the suggestion solves your problem, you may consider marking that a solution as it may help others with similar questions.

Cheers!