Recapture depreciation on sale of rental

Forum|Forum|2 years ago
March 25, 2024
3 replies
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I sold my rental of 8 years in 2023. I enter the information on the business section "sale of business property". But, TurboTax doesn't automatically recapture the depreciation of $32K that I claimed over the 8 years. It did everything else correctly by calculating my capital gain. Can someone walk me through the process, with screenshot if possible.

TurboTax Home & Biz Windows

ee-ea

Employee

See this FAQ

https://ttlc.intuit.com/turbotax-support/en-us/help-article/real-property/sold-rental-property-report/L4No7YsIW_US_en_US?uid=lu5v1d7t

Carl11_2

Employee

If the property was still classified as a rental when you sold it, then you should report the sale in the SCH E section of the program. Only then will depreciation recapture be automatic.

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 2023". Select it. After you select the "I sold or otherwise disposed of this property in 2023" 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 2023" 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.

TaxInCalAuthor

I don't qualify for a live it. This property has always been a rental property. I follow the below video and it deduct the depreciation from the cost basis and treat it as a capital gain, which I don't think is accurate.

How To Calculate Gain | Sale of Rental Property | TurboTax (youtube.com)

AmeliesUncle

@TaxInCal wrote:
it deduct the depreciation from the cost basis and treat it as a capital gain, which I don't think is accurate.

Why do you think it is not accurate? That sounds right to me.

The gain due to depreciation is a Capital Gain, but it is a special kind of Capital Gain that is taxed at ordinary tax rates, up to 25%. That gain due to depreciation should show up on line 19 of Schedule D.