sold a rental property depreciation

Forum|Forum|3 years ago
March 2, 2023
3 replies
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sold a rental property owned for over 40 years in 2022.

It has been fully depreciated for OVER 20 years.

looks like when I started using turbo tax in early 2000's,

I must have put in full price of property and did not separate land.

I believe originally return had net land value.

This full price has carried forward for the last 20 years.

Is there a way to correct this error or do I continue with full price as what was depreciated?

This is what my return has indicated for 20 years.

House cost 37,600 in 1979

Carl11_2

Employee

You really need to seek professional help to fix this. Especially if your state taxes personal income. You've taken way more depreciation than allowed each year for the entire 27.5 years it was depreciated. Basically, that would make your cost basis in the entire property ZERO and 100% of the sales price (minus sales expenses) taxable income to you. Therefore, I suggest you RUN to a local professional for help with this, and I hope they can keep your tax burden on the sale (as well as possible fines and penalties) as low as possible.

TommyknockerAuthor

Thanks for the reply.

AmyC

Employee

While going through the sale, it shows the cost of the house with no land value. This is fine at this point since you are changing things.

You will need to input the total depreciation taken over the 40 years versus what the program knows. The program will ask you to confirm your depreciation, enter the correct amount. The program will accept what you enter.

I agree with Carl that this situation is exceptional and you will have quite the tax bill. You have no basis and should amend returns.

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Carl11_2

Employee

You have no basis and should amend returns.

The problem is bigger than you may think. Recaptured depreciation is taxed at the ordinary tax rate, while capital gains on the sale (looking at SEC1250 gains here) are taxed at the capital gains tax rate. If you just recapture all depreciation, then your entire original cost basis in the property will be taxed at the ordinary tax rate, since that's what you will basically be recapturing.

While you can do that, it's going to cost you big time on the tax front.

AmeliesUncle

@Tommyknocker wrote:
It has been fully depreciated for OVER 20 years.
looks like when I started using turbo tax in early 2000's,

If it was fully depreciated before you entered it into TurboTax, TurboTax should not have have taken any depreciation.

If that is true, nothing unusual needs to be done. Just enter the correct amounts now and report the sale.

TommyknockerAuthor

turbo tax did not take any depreciation.

I have turbo tax records back to when began to use in 2006

from 2006 on depreciation and amortization report

service date 5-1979

cost net of land 37600 (this is not net of land but full price)

depreciation basis 37600

life 24years

prior depreciation 515

current depreciation 0

I am sure house was fully depreciated. In this time frame.

with the house and land separated

AmeliesUncle

@Tommyknocker wrote:

I have turbo tax records back to when began to use in 2006

prior depreciation 515

I am sure house was fully depreciated. In this time frame.
with the house and land separated

The "prior depreciation" might indicate you might have used TurboTax before 2006 (in 2003).

However, *IF* you did mistakenly depreciate the land for a very short time, it appears to be for an extremely short amount of time, and I wouldn't bother worrying about it. It would be different if you had done it for many years, but that isn't the case for you.

Just correct add the land value in now, and make sure the "prior depreciation" for the building is the full amount of the building cost (total cost minus the land value).