Sale of Rental Property and disposition of improvements

Forum|Forum|4 years ago
March 11, 2022
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In 2015 I bought a rental house for 215,000. I sold the house this year for 315,000. Over the course of 6 years, I made several improvements: Significant expenses like a Roof, New Driveway, New French Doors, Wood Floors, other less expensive items. My questions:

1). TT requires you to split the sale into asset and land. The land appraisal alone for 2021 shows $160,000! Back in 2015 it was much lower, $88,000. How do I reconcile that with the overall sales price? Should I assign something other than $160,000 to the land portion? Assigning $155,000 ($315k - $160K) to my asset doesn't seem right.

2). How would you classify a totally new driveway when added as an improvement? "J5 Qualified improvement" or something else? How would you classify a new French door that replaced an old sliding door? What happens if I classified it incorrectly when I initially added it?

3). Going back to my sale price of $315,000 ... how do I dispose of the improvement items like I mentioned above? TT asks about selling each of my improvements. I don't know what my roof, driveway, French doors, etc represent in the $315,000 figure. I know what I originally paid. Does the total of these improvements affect my original purchase entry of $215,000? I'm doing something wrong because I'm getting error messages during the smart review. What step by step process should I use for each improvement so I can satisfactorily dispose of these improvements in the sale/depreciation section?

Critter-3

You use the same ratios for the sales price and cost of sale that you used when you put the assets into service ... it is a simple math problem using ratios ... don't dive deeper into the pool than that. If you have NOT entered and depreciated the assets over the years it was a rental then RUN to a local tax pro to get this massive error corrected.

A simple example of ratios ... if you have more assets than the example then you will have more lines. Remember if you divide a big number into a littler number you get a % ... thus 5000/100,000 = 5%

original cost basis ratios Sales price cost of sale

home 80000 80% 160,000 8,000

land 15000 15% 30,000 1,500

Imp 5000 5% 10,000 500

totals 100,000 100% 200,000 10,000

All you need to enter into the program is the % of sales price & % of cost of sale for each asset ... once you have these figures the entry in the asset section is simple.

RAH727Author

First ... thank you!

I used actual costs of purchase & sale from the Title companies Settlement Statement.

I did not make any improvements to the house before starting the rental. So I have no improvement ratio.

Over the course of 6 years, several improvements were made -- and entered -- as property improvements. I may or may not not have categorized them correctly(i.e. wood floor vs roof vs driveway vs drainage -- which was one of my questions), but they were entered nonetheless for some type of depreciation.

So I sold the house for $315,000. Besides disposing of the rental property itself for $315,000, TT then asks me if I sold the roof, the driveway, the wood floors, the new doors, etc ... obviously I did, as those went with the house.

Just to be clear...

When it comes to entering sale of the property, please confirm that you are saying to use the same ratio as when I entered it into service. If I had established a 70/30 split when I put the rental into service, then my sales price would be entered as $220,500 for the asset. My land sales price would be entered as $94,500. Correct?

That adds up to my sales price of $315,000 .... but I still have to deal with all the listed improvements.

Now , how do I treat the sale of each improvement? Say the new front door/assembly cost me $5,000 when I originally listed it as an improvement. What do I put in the sale price for all these items?

Critter-3

That adds up to my sales price of $315,000 .... but I still have to deal with all the listed improvements. Yes you do ... all assets must be considered.

Now , how do I treat the sale of each improvement? Say the new front door/assembly cost me $5,000 when I originally listed it as an improvement. What do I put in the sale price for all these items? Again refer to my simple example ... total up all the assets and do the calculations for the ratios ... then use those % against the closing costs and sales price. Set up a spreadsheet just like I posted which is the same thing I was taught and have used for 30 years. Stop thinking about this too much and just follow the example.