Moved back into a house which had previously been a rental

[TAG]

The taxpayer moved back into a house which had previously been a rental.  It had started out as her personal residence, then she got married and moved into her husband's house and rented out her old residence for approx. 2 years; now they moved back into her house.   They are not doing this to try to save on taxes when the sell the house; they plan on living there forever.  Are their any tax implications I need to address because of this?

Thank you,

Terry

 

[Possi]

When my clients do that, I don't remove the Sch E, but I stop all depreciation on the date they moved back. Taxwise won't attach it if there isn't income and expenses. I just have to be sure it's clear.

That way, if they decide to sell, you'll have that record of depreciation for recapture. 

I'm sure others will chime in on this. 

[Lion EA]

Plus, non-qualified use will impact their 121 exclusion when they sell.

[TAG]

Thank you so very much.

 

Terry

[Abby Normal]

Finer points:

To get ATX to calculate the partial year depreciation for the final year, assuming they didn't move back in on 1/1, pretend like you're disposing the asset and enter the date it stopped being a rental on the disposition tab. Override the depreciation amounts in the main asset tab to the amount was calculated. Then removed the disposition info.

Make a note for next year to change the business use % to zero by entering 0.001 in the business use field in fixed assets, so no more depreciation is calculated. When you delete the Sch E, the assets will become 'Unassigned'.

[Pacun]

On 4/21/2020 at 4:37 PM, TAG said:

they plan on living there forever.

 

Just give them the depreciation schedule for the years taken and tell them to keep that handy when they sell the house.  Chances are that you will not be their preparer when they sell or inherit the house.