How to enter sale of a rental investment property in TurboTax?

Forum|Forum|5 years ago
June 15, 2020
2 replies
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Hello, I sold the rental property last year on 05/1/2019 for $670,000. The expense was $22,180 (including all the eligible expenses). On the sales information screen, should I spilt up asset sales price and land sales price? If so, should I take the % of house vs land based on the cost basis?

For cost basis, I bought the property on 1/4/2006. Cost - $645,900, and cost of land - $218, 300. I converted the house to rental property on 01/01/2008, should I use the market place price for cost basis at that time? I have about $15K in depreciation. Thanks for your help!!

TurboTax Home & Biz Windows

Best answer by Anonymous_

If the property was sold at a gain, the basis is the original cost plus amounts paid for capital improvements, less depreciation taken.

If the property was sold at a loss, the starting point is the lower of the property’s adjusted cost basis or fair market value when it was converted to rental property (Regs. Sec. 1.165-9(b)(2)).

Anonymous

On the sales information screen, should I spilt up asset sales price and land sales price? If so, should I take the % of house vs land based on the cost basis?

yes you need to split up the sales proceeds and the sales cost between thee building and land. Technically based on their relative FMV on the date of sale. Use cost basis when you purchased. depreciation is subject to recapture

Carl11_2

Employee

Please read the below guidance to help you avoid the headaches that will occur if you don't follow the guidance.

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 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.

GoinBroke

Employee

The reply (answer) in a 2020 posting on the Subject stated that "If you sold a rental property 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." My question is ... I don't understand why, since all the asset Gains and Losses add together on Form 4797, Page 1.

I sold the property for a Gain. If I disposition each of the assets with a sales value of $0 or $1, I get a loss for each that have a remaining basis to depreciate. This was actually the recommended answer to previous questions submitted to TT.

The only way to obtain no Gain or Loss ($0) is to enter the exact difference between the Cost (Depreciable) Basis and the Total Depreciation at the time of sale. This is what I did on my 2021 return yet to be filed under an extension.

Example: Asset Cost (Depreciable) Basis $4,000 minus Prior Depreciation $2000 minus Current Depreciation $100 equals $1900. Enter $1900 as this Assets Sale Price and you get $0 Gain/Loss.

If it needs to be a gain of $1, then I would need to enter this difference plus $1, i.e. $1901.

Does anyone know the correct (or IRS acceptable) approach?

Happy to make it a Gain of $1 if it keeps me in the good graces of the IRS.

Thanks!

Anonymous_Answer

Employee

If the property was sold at a gain, the basis is the original cost plus amounts paid for capital improvements, less depreciation taken.

If the property was sold at a loss, the starting point is the lower of the property’s adjusted cost basis or fair market value when it was converted to rental property (Regs. Sec. 1.165-9(b)(2)).