How to Enter Depreciation Recapture in TurboTax

Forum|Forum|6 years ago
February 2, 2020
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Hi, I am looking to put in depreciation recapture into my filing this year and don't see where to put it, I believe it is a 4797 form. I sold a condo after owning it for five years. I lived in it over 3 for years, which meets the no capital gains tax criteria. I did rent it out twice though in which I depreciated the condo in previous tax years. Where do i put this info in the TurboTax program? Thanks, Brian.

ColeenD3

If it was not rented in 2019, you will need to make your entries in Sale of Business Property. You can account for both the depreciation and the personal use for the exclusion.

It it was rented in 2019, you can also account for the depreciation and there is a screen to enter your personal use.

Carl11_2

Employee

If t he last occupant to move out of the property prior to the sale, then you report the sale in the Rental & Royalty Income (SCH E) section following the guidance below. The program will take care of all depreciation capture "for you" in the background. Once you have completed the SCH E section of the program you can view the forms in forms mode *ONLY* if you are using the desktop version of TurboTax. (Forms mode is not possible in the online version.)

If the last occupant to move out of the house was the owner of the property, then you can NOT report the sale in the SCH E section of the program, You have to report it in the "Sale of Business Property" section. For that, you will have to manually figure and enter the total of all prior depreication taken on the property, when the program asks you for it. To get the "correct" figure, take a look at the last tax return you reported rental income on the property.

You will find two IRS Form 4562's for the property. Both of them print in landscape format. One is titled "Depreciation & Amortization Report" and the other is "Alternative Minimum Tax (AMT) Report". You'll be most interested in the first one. Add together the amounts in the "prior year depr" column and the "current year depr" column to get the total amount of depreciation you've taken since you owned it. That's the figure you need.

Do be careful though, becasue your "AMORTIZED" costs if you have any, are deducted, not depreciated.So if you have any amortized items listed that have not been fully deducted as of the date of sale, they need to be accounted for separately from the depreciation recapture so they're not taxed "as if" it was recaptured depreciation.

The below guidance applies only if the last occupant to move out prior to the sale was a renter.

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 ahve a selection on it for "I sold or otherwise disposed of this property in 2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" 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 it it's zero. Then you MUST work through the "Sale of Assets/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. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically, when working through an asset you select the option for "I stopped using this asset in 2019" 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.

Something4Taxes

@Carl11_2 Thanks, that helped with some of my questions about selling our previous primary residence that we rented before selling. I'm not clear about how you handle deducting partially depreciated assets other than the house from the house sales price.

Do you simply deduct the depreciation taken previously and will be taken the current year of the sale from the house asset's sale price, and have the sale price of the asset be that depreciation... or do you need to do something else to offset what depreciation has not been taken yet (because maybe it would be included otherwise)?

Also, one more somewhat related topic: what about loan points?

I understand how tangible assets like improvements or furniture get sold with the house, but not clear about loan related items, as loan items are often disregarded in closing costs, etc for the basis.

Do intangible assets get "sold" with the house too, such that the sale price of the house gets allocated across them too, or is that only tangible ones that you do that with?

And does it matter if the depreciation was all taken on them yet?

Thanks again!

Carl11_2

Employee

I'm not clear about how you handle deducting partially depreciated assets other than the house from the house sales price.

Did you not read/see that part in the "sale of rental property" guidance above maybe? It's a lot to read, I know. But I can't make it any simpler or shorter really.

Do intangible assets get "sold" with the house too

I assume you are referring to the financing fees listed under "Amortization" on the 4562. You can't "Sell" that. What you do is select the option that it was "converted to personal use" and on the next screen elect to have the program transfer the remaining balance to be deducted to the rental expenses section. When done, you can work through rental expenses and you'll see the very, very, very last screen in that section is for Miscellaneous Expenses. On that screen you'll see and entry for your financing fees and the remaining amount to be deducted, claimed as a rental expense.

And does it matter if the depreciation was all taken on them yet?

Not sure I follow you here. There is no such requirement for assets to be fully depreciated. It doesn't work that way. But understand that depreciation (unlike amortization) is *not* a permanent deduction. When you sell the property you are required to recapture the total amount of depreciation already taken on an asset. You will pay taxes on that depreciation, and that recaptured depreciation will increase your AGI for the tax year. (Recaptured depreciation is taxed anywhere from 0% to a maximum of 25%, depending on your AGI.)

Hassan6

I sold my house last year. I took depreciation on it as it was used partially for a home office. Where do I enter the depreciation taken?

DianeW777

In the Sale of Home section of the return. If you used the home office, and did not use the simplified home office deduction, then you must gather your information from your returns. Your 2021 return should show your accumulated depreciation used in all years.

Once you have that figure you can continue with the sale of your personal residence. When asked for the cost basis you will reduce that by the amount of depreciation used for your home office. As you go through the sale of home you will be asked for the depreciation.

Let's go step by step:

Scroll to Less Common Income > Select Sale of Home (revisit or update)
Continue to indicate you sold your home > Edit or add your home address and ownership > Continue
Enter the sales date, Selling Price and Sales Expenses > Continue
Enter the date acquired and the cost of the home (includes any capital improvements for the period of ownership
Continue past the 'Less than two years' screen > Yes the home was not used for anything else > Continue
Select No another home was sold after _____ date > Select Both of us owned the home > Continue
Select Other reasons as the Reason for Sale > Select None of these for Other Reasons for Sale > Continue
Select Yes for Depreciation After May 6, 1997 for both of you > Continue to answer the remaining questions.

@Hassan6

[Edited: 04/14/2022 | 12:32p PST]

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Hassan6

Dianne,

Thank you so much for your very helpful response, It saved me much aggravation searching for the answer. You were precise in your instructions. I remain grateful.

The best,

Hassan.