Rental property sold at a loss but Turbo Tax says I have a gain

Forum|Forum|2 years ago
January 31, 2024
2 replies
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Hi there - I'm running into issues when reporting the sale of my rental property. Turbo Tax indicates I have a gain of $151,877 on the sale (and owe $30k+ in taxes) where I believe I should actually have a loss here.

The basis was re-set in 2018 when my husband passed, to the FMV of $403,500 broken out as follows:

Asset: $259,047

Land: $144,453

Prior Depreciation: $24,935

We sold in 2023 for $375,000 with $16,876 in expenses, broken out as follows:

Asset Sales Price: $240,750

Asset Sales Expense: $10,834

Land Sales Price: $134,250

Land Sales Expenses: $6,042

I dont understand why Turbo Tax is calculating such a high gain here. Could there be an error in the system or am I missing something? Can anyone give me some guidance on how to proceed?

Thanks in advance!

KrisD15

To clarify, you must also take into account any depreciation take from 2018 until you sold.

Are you entering 259,047 for your basis in the building and also 144,453 as your basis for the land?

Are you reporting the sale of BOTH assets, the building AND land.

Did you report the disposition of any other assets?

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Taxing1111Author

Thank you for the reply @KrisD15 -

Yes, I am entering both those amounts for the basis of the building and land respectively. And yes, I am entering the sale of both the building and land.

No, there is no other disposition of any other assets.

Many thanks -

KrisD15

Since you have a basis of 259,047 for the building and sold for 240,750 with 10,834 selling expense, you would have a 7,463 loss.

The land had a basis of 144,453 and sold for 134,250 less 6,020 selling expenses which would generate a 4,183 loss.

So you start with a 11,646 loss.

HOWEVER when you sell rental property, you need to "Recapture Depreciation".

Depreciation works great when the assets wears out, but that doesn't happen with real estate.

You had 24,935 depreciation taken through 2017 and you don't list the depreciation from then until you sold, but I estimate it was around 56,500 based on 259,047 depreciation value. So the depreciation recapture would be around 81,500.

Needing to recapture 81,500 but having a loss of 11,646 leaves around 80,000 to claim as income.

This is still way off from your result, but almost half, so I am wondering, did you enter the sale twice? Once in the Rental Sections and a second time in the "Sale of Business Asset" section?

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AmyC

Employee

1. Yes. You are required to keep the taxes on rental property from time purchased until sold plus 3 years.

2. Maybe, let's see where things are after a little more digging. You must have had some reason for saying it was all fresh in 2018. Let's work with what you have and know. Did you own the property jointly or was it all in spouse's name? Are you in a community property state?

Was it always a rental? How many years was it rented - approximately? You said you think it was nearly depreciated - good knowledge.

3. 2023 should be filed correctly and move forward

4. We are glad to help. We also have live service and experts to do your taxes for you but this will involve you doing a little thinking and digging no matter what direction you go.

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Rick19744

Employee

A couple of comments:

Was there an estate return prepared when your husband passed? Or how are you arriving at what you are calling "reset"?
Section 1250 will only apply if you have a gain, and based on your current facts, that is not the case; at least based the the actual figures you indicate in your post.
So at the moment we don't have sufficient information to help, but if you input the details into TT based on what you are saying, the current result does not make sense. Go back through and revisit this as you would be surprised at the number of users that find the error when going back again and looking at ALL the questions and input.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.