Sale of Rental Property - When Property Purchased an Incorrect Purchase Price Was Entered in TT

Forum|Forum|3 years ago
March 11, 2023
1 reply
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When I originally entered the purchase price in TT of my rental property that was purchased in 2014 I entered and incorrect amount which is $12,000 less than it should have been. I sold the property in 2022. How do I adjust the cost basis when entering the sale of the property in TT. I have computed the amount of additional depreciation that should have been taken each year but how do I enter. Is there anything else that I have to consider. I also have fully depreciated improvements/assets. How do I account for them in the sale? Do I add the original expense for them back into the cost basis or because they are fully depreciated do I ignore them?

Thanks for any help!

Carl11_2

Employee

I also have fully depreciated improvements/assets.

If you would have taken the correct depreciation, and the asset(s) would still have been fully depreciated, then your cost basis on that asset is still zero. (not including the land, since land is not depreciated.)

Assuming you do not qualify for the capital gains tax exclusion, you can just report the sale in the Sale of Business Property section. There you can use the correct cost basis. When asked for the depreciation amount, You'll enter the "higher" of the depreciation actually taken, or the depreciation you should have taken. While the capital gain realized will be taxed at the capital gains tax rate, the recaptured depreciation will be taxed at the ordinary income tax rate, which can be anywhere from 0% to a maximum of 25%.

mglauner

Since you are selling your Rental Property, it would be counterproductive to file Form 3115 with the IRS now. If you stopped renting your property, and it was then vacant for a time before the sale (while you did repairs/improvements, etc.) in the Rental section, indicate that you 'converted the property to personal use' with the date the last renter moved out.

Then report the sale in 'Sale of Business Property'. Search for sale of business property (use this exact phrase—copy/paste if necessary) and then select the Jump to link at the top of your search results.

Add the $12,000 amount to the Cost when reporting the sale (which is the sum of the remaining cost basis, less total depreciation taken, plus sales costs). Add Prior Depreciation and Current Year Depreciation Amounts from Form 4562 for Depreciation Taken, and subtract from Original Cost Basis for Remaining Cost Basis amount.

If the Assets are fully depreciated, there is no basis to add to the sale.

@stugee

stugeeAuthor

Just to clarify, the Property was purchased as a rental and was rented until the day I closed which was in 2022. It was never converted for personal use. Can I still report this in Sale of Business Property?