Question

TurboTax confuses my sale of rental property. Any help would be nice.

Forum|Forum|5 years ago
May 7, 2021
2 replies
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Hello, I am confused about how TurboTax behaved when I entered my sale of rental property details. Here is my situation.
1. I bought the home in June 2008 and lived there until December 2014. That home was my primary residence during those years.
2. I moved to a different state due to a job change. Bought a new home in March 2016 in the new state.
3. I started renting my old home in the old state in Jan 2015. Every year my tax preparer computed the rental income that ended in losses. So I had losses for 2015, 2016, 2017, 2018, 2019 and 2020
4. Due to my higher income in the new state, I could not deduct the rental losses on my tax return for the corresponding year. Hence I carried forward all the losses until 2020.
5. In 2020, we had the rental until March 2020, and then the home was vacant until we sold the rental property. We sold the home in July 2020. I sold the rental home for an amount that equated to the cost basis plus all expenses. Technically not so much profit.
6. When I entered these details under the Rental and Royalties section, the TurboTax reduces my ordinary income adding all those losses from the previous years and displays them on line 8 of 1040 with a negative value. Due to the negative value shown on line 8, the TurboTax reduces my AGI and the taxable income.
Is this a correct behavior? I thought the rental loss would not reduce the ordinary income. Please advice. Thanks!

TurboTax Premier Online

AmyC

Employee

Perfect. The rental basis minus depreciation plus unallowed losses subtracted from the sales price must be a loss for you. This does go against ordinary income in the year of the sale. You want to dispose of all assets listed. If you have more assets than the house, you will want to sell them for $0 as well.

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Carl11_2

Employee

Sounds to me like the program is working exactly as designed and intended. In the year of the sale, all of your suspended losses are released. Therefore, a reduction in your AGI would be perfectly normal and expected, based on my assumption of your unclarified cost basis and sales price.