Form 4797 Not getting all the original basis in calculation

Forum|Forum|4 years ago
April 22, 2022
2 replies
0 views

Hello.

I sold residential rental property in 2021. There seems to be a discrepancy between the amount of cost or other basisis plus expense of sale (Line 21) and the the Asset Entry Worksheet. Here are the high-level facts:

I purchased the home (in 2008) and entered an "asset" into TurboTax for depreciation purposes. About 30 days after closing (also in 2008), I had the foundation repaired and entered a second "asset" into TurboTax for depreciation purposes.

Now at sale, the original purchase "asset basis" is being reflected in Line 21, but the foundation "asset basis" is not in Line 21. I have entered the same "sale date" on the foundation asset worksheet, but it doesn't seem to trigger the basis being added to Line 21 (and accumulated depreciation deducted on line 22).

If I put in a sale price of $0 on asset worksheet (and the full sale price on the house asset), it shows up in Line 21, but comes as a "loss"... which I don't think is the appropriate way to handle the sale.

I'm stuck on how to accurately get the Foundation "basis" included in Line 21.

Please let me know how to handle.... do a manual entry somewhere in TT or is there an appropriate way to use Asset Entry Worksheet so it truly works and flows to all appropriate forms (my strong preference 🙂

Thank you!

Mike9241

for each asset, you must indicate it was sold and allocate a portion of the sales price and sale expenses. otherwise, Turbotax will not include the cost and depreciation in the sales calculation.

since the home and foundation were acquired close together I would allocate sales price proportional to the cost of each.

Carl11_2

Employee

You're right, in that it's not the correct way to handle/report it. If you show a loss on some assets and a gain on others, then the amount of depreciation that "should" be recaptured is instead, included in the capital gains and taxed at the capital gains tax rate, instead of the ordinary income rate.

Here's the general guidance on reporting the sale of rental property in TurboTax.

Reporting the Sale of Rental Property

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in 2021". Select it. After you select the "I sold or otherwise disposed of this property in 2021" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even if it's zero. Then you MUST work through the "Sale of Property/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets. You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset. Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1 on some assets. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1 on some assets.

Basically, when working through an asset you select the option for "I stopped using this asset in 2021" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.

TurbQAuthor

Thank you so much for the guidance. I made progress, but not exact yet.

I went into the Asset Worksheets for the house and the foundation. I split an amount of the sale and the expenses across both asset worksheets (substantially weighted towards the house). Then, I checked Form 4797. What TurboTax did was to add another "sale" of the foundation... So I have the house in Column/Property A and the Foundation in Column/Property B...

I'm not sure if it matters, but is there a way to just combine the totals into Column/Property A since they are really both the same property? Or... is this the correct way to handle within TT?

Thank you

klong1212

So I have a similar problem as 4797 has not carried cost of land forward to 2023 when I sold. It shows as zero even though I did report land was worth 150,000 in 2021. I allocated SP of rental house between structure and land in same proportion as first reported in 2021. Can anyone explain what the program is doing?

PatriciaV

Employee

Check your Depreciation Report to see if it includes an amount in the land column for the asset. You may need to provide this information again when you report the sale. Although land is not depreciated, TurboTax will show the land value on the report for historical purposes.

If you are using TurboTax for desktop, click the Forms icon in the header. Find the depreciation report (Depr Report) in the left column and click the name to open it in the large window.

If you are using TurboTax Online and have not yet filed your return, you can download your entire return (including worksheets), as a PDF file to view or print. For this option, open your return, choose Tax Tools in the left column then select Print Center.

@klong1212

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"