Rental Property converted to personal in 2023??

[R B Tax]

Good Evening All,

I have a client which i filed 2023 return that had a rental property that was rented for only Jan 2023 and he moved into it in February 2023. I believe i may have mistakenly entered the data incorrectly. In the SCH E worksheet, i entered 30 days rental and 335 days personal use and it correctly prorated interest/taxes/depreciation etc to Sch E and SCH A. He lived in property Feb 2023 to Mar 2025 and sold property. I'm trying to file his 2024 return but that property is still showing up as a rental. Just trying to figure best way to handle this property. All the interest/taxes i'm using on Sch A. I think i need to keep property as Rental with no activity and when we file 2025 taxes deal with the sale as sale of personal with depreciation recapture. The property was purchased May 2018. Any suggestions on how to handle would be greatly appreciated.

Thanks,

Ray Burts, EA

[sjrcpa]

Override depreciation to zero or change method to land and leave it in the software, particularly if there are suspended passive losses associated with it.

EDIT: This what I'd do in Lacerte. Just realized this is a ProSeries question. YMMV.

[Terry53029]

If it was a rental you should not have put any personal use in January as your client would not receive the correct tax treatment, and you may ask client if they wish to amend 2023 (for one month not much of a change). Was it a rental since 2018 ?. When he moved into it in 2024, converting to personal use, then in Proseries on the asset entry worksheet under disposition, just put date of conversion and no price.

[TaxGuyBill]

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@R B Tax wrote:

I believe i may have mistakenly entered the data incorrectly. In the SCH E worksheet, i entered 30 days rental and 335 days personal use and it correctly prorated interest/taxes/depreciation etc to Sch E and SCH A.

He lived in property Feb 2023 to Mar 2025 and sold property.

I'm trying to file his 2024 return but that property is still showing up as a rental.

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As Terry said, entering the 30/335 days was wrong (you should have entered zero personal days, then manually prorated the annual expenses, and only entered other expenses, such as utilities, etc., that applied to the rental period), but the results may have been fairly close compared to doing it the right way, so it may not be worth fixing.

If you are using the $250,000/$500,000 Principal Residence exclusion, be sure to fill out the section of the Home Sale worksheet for "Nonqualified Use".  Just because they lived there for the last two years does NOT mean they can exclude the entire gain.

You can just delete the Schedule E Rental Worksheet, and it will get rid of that.  But BEFORE you do that, (1) print out the depreciation report, so you know the total amount of depreciation that was taken, and (2) check if there are any unused Passive Loss Carryovers from Form 8582.

• If there were any unused Passive Loss Carryovers, first check if there was any passive income on the 2024 return that the carryover losses could be used against; if there are, you may need to keep the Schedule E on there so ProSeries can use those carryovers (you can still delete the Asset Entry Worksheets).  You may need to re-enter the rental property (but not the Asset Entry Worksheets) on the 2025 return in order to trigger the use of the carryovers due to the sale.

[R B Tax]

Thanks Terry and yes, it was a rental from 2018 until he moved into it in 2023.

[R B Tax]

Thanks Bill for your input. Yes, the 8582 does have around 99k in unallowed losses for that particular property. He has a few condos in Ft. Lauderdale that he's renting. Sounds like he's getting tired of these rental properties and is trying to sell them off eventually. If i delete the SCH E worksheet for that property, isn't the asset entry worksheet linked to it? Won't i get an error message?

Thanks,

Ray B

[TaxGuyBill · Accepted solution]

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@R B Tax wrote:

If i delete the SCH E worksheet for that property, isn't the asset entry worksheet linked to it? Won't i get an error message?

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Yes, the Asset Entry Worksheet is linked to it, but you don't need an Asset Entry Worksheet.  As I said you can just print out the depreciation report so you have the numbers.  No, there won't be an error.

However, because there are Passive Loss Carryovers for that property, that causes an issue.  The Intuit developers are clueless and ProSeries won't let the Passive Losses stay on the 8582 without a corresponding Schedule E rental property.  There is no correct way to do it, but many people just leave a blank Schedule E just so they can let the 8582 keep the Passive Loss (in your case, on the 2025 return you'll check the box on the Schedule E Worksheet indicating it was sold in a fully taxable transaction).

[R B Tax]

Thanks Bill,

One last thing, I printed the Depreciation report and of course the 8582. This guy has 4 different rentals and if i delete the SCH E worksheet or/and the Asset entry worksheet. Would it be wrong when i file the 2025 return as kinda treating this guy as a new client when it comes to this particular property and just reenter this property and add the carryover passive losses and accum. depr.on and then on the SCH E worksheet mark it as sold in a fully taxable transaction? Not sure how to put a Blank Sch E. Sorry for keep asking. 

Thanks, 

Ray B

Ray B

[TaxGuyBill]

Just re-entering the property on the 2025 return and entering the carryover passive loss for that property, then marking it as fully taxable transaction, is what most people do and will be fine (assuming the passive loss can't be used in 2024).

When I say blank Schedule E, I mean you leave the address on the Schedule E Worksheet, but leave all income and expenses as blank (including no depreciation).  That is essentially what your 2025 will show.

As for the depreciation, that won't be on an Asset Entry Worksheet.  It was converted to personal use, so the sale will be on Form 8949/Schedule D (not Form 4797).