I am using Turbo Tax Premier on Desktop (Windows). I need help in reporting the sale of rental property in 2021. Here are the details:Bought the single family home (property 1) as primary property in 2006 for $400,000Lived in the property (primary residence) through 2013. Bought a new primary residence in 2013. Put the previous house (property 1) for rent in 2013. FMV at the time of rental conversion was $325,000Sold property 1 (now rental property) in 2021 for $500,000.Closing costs were $30,000 and additional required updates were $26,000I need help in TurboTax to report this sale of rental property. Could someone tell me where do I need to show this sale? Looking at similar questions on this community forums, I see some people recommending reporting the sale in the rental section using the asset and sale of property/depreciation section OR using the Sale of Business Property section. I'd highly appreciate if someone walks me through the steps to show this sale of rental property.

You can definitely enter it in the Sale of Business Property section. The results will be the same for your tax return in both scenarios but the rental section is easier. If you choose to enter it in the Sale of Business Property section the steps below will explain how to handle the rental section to arrive at the correct depreciation. To answer this question: "You need to convert this property to personal use, with a conversion date that is the closing date of the sale. This will allow you to get the total depreciation taken on the property and all it's assets, up to the date of the sale.". How does one do this in TurboTax? When you are in the rental activity for 2021, you must select the 'Assets' section, then in each asset you must go to the screen titled 'Tell Us More About This Rental Asset'. Once you reach this screen for each asset, you must select 'This item was sold, retired, stolen, destroyed, disposed of, converted to personal use....' Next enter the date you stopped using the asset for rental purposes (date of sale). And answer 'Yes' you always used this asset 100% of the time for business. (The percentage of use doesn't change until after conversion from rental to personal use.) Select 'Yes' for Special Handling due to 'You converted the asset to 100% personal use'. Write down all the information you will need for the sale: The date acquired The total depreciation for prior years and the amount for the current year (will be shown on the screens) Be prepared to enter sale with the building & land original cost, add the capital improvements, and the selling expenses Next enter your Sale of Business Property - Include the actual cost of the rental building including land and the capital improvements. Add the selling expenses. Other Business Situations > Sale of Business Property >Start or Revisit > Enter your sale @shsabnis

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shsabnis

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Sale of rental property that was primary residence

Forum|Forum|4 years ago
April 6, 2022
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I am using Turbo Tax Premier on Desktop (Windows). I need help in reporting the sale of rental property in 2021. Here are the details:

Bought the single family home (property 1) as primary property in 2006 for $400,000
Lived in the property (primary residence) through 2013.
Bought a new primary residence in 2013. Put the previous house (property 1) for rent in 2013. FMV at the time of rental conversion was $325,000
Sold property 1 (now rental property) in 2021 for $500,000.
Closing costs were $30,000 and additional required updates were $26,000

I need help in TurboTax to report this sale of rental property. Could someone tell me where do I need to show this sale? Looking at similar questions on this community forums, I see some people recommending reporting the sale in the rental section using the asset and sale of property/depreciation section OR using the Sale of Business Property section.

I'd highly appreciate if someone walks me through the steps to show this sale of rental property.

Best answer by DianeW777

You can definitely enter it in the Sale of Business Property section. The results will be the same for your tax return in both scenarios but the rental section is easier.

If you choose to enter it in the Sale of Business Property section the steps below will explain how to handle the rental section to arrive at the correct depreciation. To answer this question: "You need to convert this property to personal use, with a conversion date that is the closing date of the sale. This will allow you to get the total depreciation taken on the property and all it's assets, up to the date of the sale.". How does one do this in TurboTax?

When you are in the rental activity for 2021, you must select the 'Assets' section, then in each asset you must go to the screen titled 'Tell Us More About This Rental Asset'.

Once you reach this screen for each asset, you must select 'This item was sold, retired, stolen, destroyed, disposed of, converted to personal use....'
Next enter the date you stopped using the asset for rental purposes (date of sale).
And answer 'Yes' you always used this asset 100% of the time for business. (The percentage of use doesn't change until after conversion from rental to personal use.)
Select 'Yes' for Special Handling due to 'You converted the asset to 100% personal use'.
Write down all the information you will need for the sale:
1. The date acquired
2. The total depreciation for prior years and the amount for the current year (will be shown on the screens)
3. Be prepared to enter sale with the building & land original cost, add the capital improvements, and the selling expenses
Next enter your Sale of Business Property - Include the actual cost of the rental building including land and the capital improvements. Add the selling expenses.
1. Other Business Situations > Sale of Business Property >Start or Revisit > Enter your sale

@shsabnis

KrisD15

I am assuming you have been reporting the rental on Schedule E and it has carried over in your TurboTax program. If not, you’ll have to enter it.

For the year the rental is sold, income, expenses, and the “depreciation for 2021 before the sale” needs to first be calculated. Select that it was sold and enter the date it was last used as a rental. Then enter the sale.

Go to Rental Properties and Royalties
Select YES to review
Continue to Rental and Royalty Summary and click EDIT (if you have more than one rental, click next to the location that was sold)
Enter any income and expenses you had for 2021
Scroll down to Sale of Property/ Depreciation
Select YES to go asset summary
Here is where the building is listed and where any other assets added should be listed.
Click EDIT to report the sale.
Clear any assets first, (such as appliances if applicable). It is easiest to allocate the selling proceeds to the remaining life of the asset. Then use the remaining sales proceeds and allocate between land and building.

You should have entered the rental with a basis of 325,000.
Sales proceeds would be reported as 470,000 to account for the closing costs.
Additional updates would be added to the basis, if done after it stopped being a rental and before selling, or claimed as expenses.
If they were made while it was being used as a rental, they should have been entered or expensed the year they were made.

Continue through this interview.

When you sell a business asset, like a rental, the depreciation is first "Recaptured" as ordinary income. (1040 Schedule 1)

Even if improperly reported the rental without claiming depreciation, you have to claim the depreciation you SHOULD HAVE claimed as recaptured in the year of sale.

Any profit left that is attributed to an increase in value is a Capital Gain. (Schedule D)

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Carl11_2

Employee

@shsabnis @KrisD15 you can not report this sale in the rental section of the program. That's because the cost basis used for depreciation is lower than your original purchase price. If you report this sale in the rental section of the program using the lower cost basis, then you will be paying more taxes on your gain than you are required to.

You need to convert this property to personal use, with a conversion date that is the closing date of the sale. This will allow you to get the total depreciation taken on the property and all it's assets, up to the date of the sale.

Then you will report the sale in the "Sale of Business Property" section using the "actual" cost basis of the property, which is what you paid for it when you originally purchased it.

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shsabnisAuthor

@Carl11_2 @KrisD15 Thank you both for providing inputs to my query. However, I'm now really confused on which way to proceed. Since the cost basis at the time of rental ($325,000) was less than the original purchase price ($400,000), where do I report the correct cost basis, which would be $400,000? Moreover, where do I add the improvements and the commissions done during the sale?

@Carl11_2 Apologies but I don't quite understand what you mean by "You need to convert this property to personal use, with a conversion date that is the closing date of the sale. This will allow you to get the total depreciation taken on the property and all it's assets, up to the date of the sale.". How does one do this in TurboTax?

@KRIS9 @Carl11_2 One other thing I'd like to point out is that I found a similar scenario asked by someone here:

1. https://ttlc.intuit.com/community/taxes/discussion/sale-of-rental-property-that-was-originally-primary-residence/01/2653975#M951155. In this case, the Tax Expert suggested that the sale be reported in the Rental section and the difference in original purchase price and FMV at the time of rental + any improvements + sales commissions and fees be added to the Sales Expenses (Business Portion only) field in the Sale of Property/Depreciation section under Rental.

2. and in this case: https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/sale-of-rental-property-that-used-to-be-primary-residence/00/35584, the best answer says to use the Sale of Business Property section to report the sale.

PLEASE HELP!

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DianeW777Answer

You can definitely enter it in the Sale of Business Property section. The results will be the same for your tax return in both scenarios but the rental section is easier.

If you choose to enter it in the Sale of Business Property section the steps below will explain how to handle the rental section to arrive at the correct depreciation. To answer this question: "You need to convert this property to personal use, with a conversion date that is the closing date of the sale. This will allow you to get the total depreciation taken on the property and all it's assets, up to the date of the sale.". How does one do this in TurboTax?

When you are in the rental activity for 2021, you must select the 'Assets' section, then in each asset you must go to the screen titled 'Tell Us More About This Rental Asset'.

Once you reach this screen for each asset, you must select 'This item was sold, retired, stolen, destroyed, disposed of, converted to personal use....'
Next enter the date you stopped using the asset for rental purposes (date of sale).
And answer 'Yes' you always used this asset 100% of the time for business. (The percentage of use doesn't change until after conversion from rental to personal use.)
Select 'Yes' for Special Handling due to 'You converted the asset to 100% personal use'.
Write down all the information you will need for the sale:
1. The date acquired
2. The total depreciation for prior years and the amount for the current year (will be shown on the screens)
3. Be prepared to enter sale with the building & land original cost, add the capital improvements, and the selling expenses
Next enter your Sale of Business Property - Include the actual cost of the rental building including land and the capital improvements. Add the selling expenses.
1. Other Business Situations > Sale of Business Property >Start or Revisit > Enter your sale

@shsabnis

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viveks45

Hi Guys - I have a same situation as others here - trying to report the sale of a rental property in 2022 that was previously purchased as a primary home in 2006 (converted to rental in 2017).

on my income summary page in Turbo Tax, I see a negative number against the sale of business property (even though my sale price was higher than the eventual cost basis and I have also entered the total depreciation taken in previous years).

any idea what mistake I am making here? Is this a valid situation in any way (due to operational losses in some of the previous years)?

Carl11_2

Employee

It is common for rental property to operate at ever increasing losses each and every year it's a rental. Losses not used in the current year are carried over to the next year. So with each passing year your carry over losses grow.

You can "realize" those losses in the tax year you sell the property. In that year, those losses will help offset and reduce the taxability of any gain realized on the sale.

If you report the sale in the SCH E section of the program, then the program will take care of this "for you", if you have in fact, been using the TTX program every single year the property was a rental so the program could do the carryovers for you.

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snallini

I sold the rental property on June 10th 2022. It was a duplex,one unit was rented and another unit was a primary residence where I lived two and a half years.

How to show depreciation recapture in Turbotax

Carl11_2

Employee

@snallini your post is an add-on in a thread you did not start. Be aware this can lead to confusion, resulting in you getting incorrect responses. It happens when folks like me don't pay attention to who is posting. (Happens to me quite often. I just happen to be "paying attention" this time.) It's best if you start your own thread with all the details that apply to your specific and explicit situation.

I sold the rental property on June 10th 2022. It was a duplex,one unit was rented and another unit was a primary residence where I lived two and a half years. How to show depreciation recapture in Turbotax

Typically, you just report the sale in the SCH E section of the program, and the program (not you) takes care of all that stuff for you. However, what works for you depends.

How did you report the rental income/expenses in the past? Did you use the option of "I rent out a part of my home?" Maybe you selected the option for renting out a multi-family unit where you live in one of the units? Maybe you treated the rental unit of the duplex as it's own physically separate rental property having nothing what'so'ever to do with the unit you lived in? (Meaning that you reported that one unit only as a single family unit and you (not the program) separated expenses?

There are several things that can affect this. For example?

Does each unit have all of the utilities metered and billed separately?

Is your yearly property tax bill separated out for each unit? Maybe you received one tax bill for the entire property and you had to split it manually?

What about property insurance? One policy for the entire duplex structure? Or did you insure the rented unit with it's own separate policy?

These are just those things I can think of off the top of my head right now, that "could" (and probably will) affect reporting the sale of this property. Typically, and depending on how it's already set up in the program, you report the sale of the primary residence unit as a physically separate transaction from the sale of the rental unit. Especially if you qualify for the "2 of last 5" capital gains exemption for gains realized on the unit that was your primary residence. (and it appears you qualify.)

Depending on the setup, as well as your knowledge of this stuff and how the program works, you may find it best to seek professional help; especially if your state also taxes personal income.

If you really want to pursue doing this yourself, please start your own thread in this forum for your own sake. But professional help is suggested at this time.