Allocating rental sales price in TT

Forum|Forum|3 years ago
February 16, 2023
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So I have a rental house I sold for a gain…..the house itself is handled by TT fine with it recapturing the depreciation I took….here are the questions….

I took the special allowance on most items……

*appliance that has fully depreciated its 5 year life I feel should get a $0 sales price

*I have a couple items like this…..a complete sewer re lining that was done 4 years ago….I choose to take the 100% allowance of the around $10000 cost in that year..…TT assigned it as a land improvement and a 15 year life ….so what sales price does something like that get? They want to recapture all depreciation that was taken or what is unused?…if the full $10000 I would assign a price of $10001? If just what I took but didn’t keep long enough to go the whole 15 years I would divide $10000 by 15 years and list the sales price as the 8 years of depreciation left? Thanks

GeorgeM777

For the sewer lining it appears you have already recovered it cost, so its adjusted cost basis would be zero. The same would be true for the appliance. Regarding allocating the sale proceeds, if the sewer lining represented 5% of the buildings value at the time you purchased this asset, then allocate 5% of the proceeds to this asset. The same process can be applied to all the other assets.

Perhaps the easiest way to allocate your sale proceeds is to allocate an amount of the proceeds to each asset based on that asset's reasonable value. Then you compare those reasonable values to the adjusted cost basis for each asset to determine whether you have a gain or loss on the asset. Allocate the remaining sales proceeds between the land and the building unless this would be unrealistic for the land and building values.

@jonpagel

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jonpagelAuthor

Employee

So for an appliance still in use but maybe 8 years old that is fully depreciated what does the IRS want? If it was $1000 brand new and it has depreciated fully the adjusted cost basis is $0….since it is old and fully depreciated I can put $0 for the sales allocation which wouldn’t recapture any depreciation I took or I can put $1001 which would essentially have all the depreciation I took taxed at 25%(in my case ordinary gains)….is that what they expect me to do? Have every penny of depreciation I took on all the items subject to 25% instead of just long term capital gains? Thanks

ThomasM125

You can assign a sales amount to the furniture and equipment equal to the fair market value as opposed to the orginal cost. You don't have to report a gain on sale of something that is basically worthless, as in your example with the appliances.

The maximum tax on the gain from depreciation recapture would be 25%, but it could be lower than that if your marginal income tax rate was less than that.

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