Turbotax calculation error if selling home which was partly depreciated

Forum|Forum|3 years ago
March 5, 2023
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If you sell a home which was previously used either as a business or a rental there is a significant problem with Form "Home Sale Worksheet" and "Home Adjusted basis". I redid the calculations using IRS Pub 532 worksheets 2 and 3. Results are very different. TT is subtracting the depreciation previously taken from the exclusion rather than the gain and completely ignoring the steps 5&6 in the IRS form. The final check doesn't pick this up.

Best answer by DianeW777

I am working on this scenario and wondered if you would like to share your file. Please tag me by using @DianeW777.

You can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, here are the instructions:

TurboTax Online:

Go to the black panel on the left side of your program and select Tax Tools.

Then select Tools below Tax Tools.
A window will pop up which says Tools Center.
On this screen, select Share my file with Agent.
You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number.
Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.

TurboTax CD/Download:

If you like, you can send a copy of your return that will be scrubbed to eliminate your personal data by using these steps:

Click on Online in the top left menu of TurboTax CD/Download for Windows
Select 'Send Tax File to Agent'
Write down or send an image of your token number then place in this issue.
We can then review your exact scenario for a solution.
Please also tell us any states included in the return.

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

leeloo

If your rental was still in service in 2022, enter everything in the Rental section. You will still be able to get the exclusion and the depreciation will be handled correctly.

On a gain of $424K your screen in Sale of Home would look like this:

Carl11_2

Employee

TT is subtracting the depreciation previously taken from the exclusion

Recaptured depreciation is not included in the exclusion. It's taxable no matter what. IRS publication 523 at https://www.irs.gov/pub/irs-pdf/p523.pdf on page 11 states: If the space you usedfor business or rental purposes was within the living area of the home, then your usage doesn't affect your gain or loss calculations (except for an adjustment to basis for depreciation, taken after May 6, 1997, to be recaptured and reported as ordinary income).

So recaptured depreciation is not treated as part of the excluded gain. It's treated as ordinary income and taxed accordingly, anywhere from 0% to a maximum of 25%

YsgAuthor

In my case the other case on Pg.11 applies: Space formerly used for business or rental. The property was first used completely as a rental and then I moved into it mid-year requiring a fractional calculation. I took depreciation at the time it was being reported as a rental.

Worksheet 3 (Pub 523) Sec.B Step 1 asks for Line 7 in worksheet 2 which already subtracted the depreciation. So the fractional calculation is done on the gain minus the depreciation. TT doesn't do that. Is the IRS worksheet wrong ?

YsgAuthor

Or else it's recapturing the depreciation twice, once in the TT "Home Adj Basis" Line 10 worksheet, and again in the "Home Sale Wks" Line 30! And if you delete either one and leave the other the resulting tax is vastly different. What am I missing?