Question

Sale of Farm with Rental home

Forum|Forum|6 years ago
January 23, 2020
1 reply
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I sold a 31.2 acre farm where I rented a home. My lease stated that the renters would only have access to the home and about 1 acre of the surrounding land. I used the poultry barn until 2011 as a commercial business and submitted a schedule F in my tax forms since 2002. I disposed of the poultry business in 2011 and turned it into personal usage. The remaining land and buildings were used for personal use for hunting and fishing and we kept personal pets in the barn. We live close to this property but we had not lived there since 2005 or so. My question is how do I treat this sale seeing that the property was divided into a personal use property and a rental home. The original cost of the rental real estate on my assets was $30,000 with two improvements totaling around $6,000. Over the years, I took around $5,000 on section 179 and 4,500 in special depreciation which included excavating around the rental home. Please let me know how to distribute the monies from the sale of the farm. I also didn't see a spot in the asset sale questions to write off the balance of the mortgage. I do have one other question. I had purchased a furnace this year, what would be the best way to enter this expense since I sold the property?

DavidS127

You allocate the “amount realized” from the sale of the property between the rental property part and the personal property part, based on the fair market value of each at the time of the sale.

When you calculate the “basis” of both the rental property and the personal property, you must recognize any depreciation take in prior periods, including depreciation taken on the personal property when it was used as a farm.

The IRS rules applicable to your situation are contained in IRS Publication 544 Sales and Other Dispositions of Assets Property Used Partly for Business or Rental and IRS Publication 551, Basis of Assets.

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