Recently sold primary residence, where I rented 50% of the unit. Question about asset cost.

Forum|Forum|3 years ago
January 28, 2023
1 reply
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Hi,

I bought a 2 bedroom condo about 8 years ago and rented the second bedroom the entire time I lived in it. I sold it in 2022 and noticed that even though I qualified for the income exclusion my cost basis was really low, which resulted in my gain being much higher.

I was looking at the Asset screen for the Home Cost and I realized I entered 50% of the Cost since I was renting 50% of the unit. (Home Cost - $187k so I entered ~$93k as the cost.)

Now it calculates my gain with the full sale price $250k with a cost basis of $76k (93k cost - 17k deprecation) instead of the actual cost basis 170k (187k - 17k Dep).

Either scenario results in me getting the income exclusion for home sale, but should I fix it this year or was the correct thing to do? Considering that TT isn't calculating the cost basis or gain correctly I am guessing I did it incorrectly.

Rental Property

leeloo

Since it was also a rental property, the sale should be entered in that section. You will prorate the space like you have always done. (duplex) Continue through all the screens noting the sale.

Treat this as two separate properties. On the rental side, you pay capital gains tax on the entire gain, including depreciation recapture. On the part that used to be a personal residence, you can exclude 250k/500k,

You will be asked in the latter part of the interview if it also was a primary home.

Anonymous

So are you saying I should just go through the Rental Properties and Royalties screen and the Sale of Home screen as if they are seperate items?

When I go to Sale of Home (gain or loss) screens, do I just enter in the $187k cost basis since this is on the personal side? I went through all the screens and I got 1 question that says Depreciation After May 6, 1997, but it says Note: Only report here depreciation that was NOT reported as a seperate business sale.

It's just a little confusing because the Sale of Home is now showing the right gain on the sale of property, but I didn't encounter any deprecation recapture screens on the Rentals Properties and Royalties screen. It basically just asks me when it was sold and then says the depreciation for 2022 is $X and we will move it to the right form for you. I don't see any other screen and it just moves me on to deductions and credits.

EDIT: The only time I get a screen that says I have a taxable gain is if I enter in the depreciation on the Depreciation After May 6, 1997 screen

ThomasM125

You do need to enter sale and cost information in separate portions of the program.

In the rental section, you need to enter the portion of the sale income that pertains to the portion of the property you had rented, which is seems was 50% here. You also need to have entered the cost for the portion rented. TurboTax will calculate the depreciation recapture based on the accumulated depreciation. You do a similar thing for the home sale in that section.

You may be able to exclude the gain on the home sale portion, but any gain on the rental portion will be taxable, either as capital gain income or ordinary income, based on the cost, sale amount and depreciation allowable on the property.

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