1099-S Commercial Condo Sale (not a rental)

[Kahya]

Hello, my fiancé ran an Essential Oil business out of the commercial condo he owned (condo was purchased on 09/05/2008). He sold the condo in 2022 (due to a slow down of business during Covid) and received a 1099-s for the sale. The 1099-s was issued under his LLC (sole proprietor, he is the only member). We never depreciated this condo on his personal taxes.

I have a few questions regarding this sale:

1 - Since we have never depreciated this condo, do I now need to figure out what amount of depreciation would have been?

2 - Where do I enter the 1099-s on his personal taxes? (I see on Business tab - Less Common Business Situations a section for Sale of Business Property; however, when I click on that, the only section that looks like I should click is: Sales of business or rental property that you haven't already reported)

3 - I have looked on Google and seen where I should file a form for an adjustment since we did not claim depreciation. 

Other details:

This condo was not used as a rental

He also sold his main home in 2022 and received a 1099-s as well (I think I have entered this correctly on turbo tax)

Any help would be appreciated. This is new for me regarding the 1099-s. I have filed our personal taxes for over 20 years, but this is new.

Thank you in advance.

[PattiF]

• Yes, you need to figure out the depreciation that was never taken during the years that it was used as commercial space. 

The depreciation that was not used in the past on your tax returns can be used now by filing Form 3115 with your current tax return. Form 3115 is very complicated and you may want to contact a CPA or EA to help you with filling out the form. And you may want to file Form 4868, Application for Automatic Extension of Time to File US Individual Income Tax Return because you will probably need a little more time to work on the prior depreciation that was not taken.

Form 3115 and Form 3115 Instructions 

Form 3115, Change in Accounting Method, is used to correct most other depreciation errors, including the omission of depreciation. If you forget to take depreciation on an asset, the IRS treats this as the adoption of an incorrect method of accounting, which may only be corrected by filing Form 3115.

To make a change under Rev. Proc. 2011-14, the taxpayer must attach Form 3115 to a timely filed (including extensions) original return for the year of the change. In addition, the taxpayer must file a copy of Form 3115 with the IRS National Office no earlier than the first day of the year of change and no later than when Form 3115 is filed with the federal income tax return for the year of change.

This form allows you to recover the deduction which is important because the rule for depreciation is allowed or allowable.  This means that when the property is later sold, the depreciation will be recaptured whether or not you actually used the deductions.

• The 1099-S will be entered into the sale of the business.

[Kahya]

Thanks for your help.

Also, the business is still up and running (online presence only with website), only the building was sold. Where would I enter this info on personal taxes? Would that be entered on form 4797?

[ThomasM125]

You should enter the condo as a business asset and then report it as being sold in 2022. The sale will show up on a form 4797.

You need to edit the business entry in TurboTax and find the Business Assets section and choose Assets being depreciated. 

Then, enter the asset under the category of Real Estate Property and then Non-residential Real Estate. Indicate that the asset was sold when prompted to:

Later, you will be asked to enter the sale price and depreciation in order to calculate the gain or loss on sale.

[Kahya]

I really appreciate your help!! Made sense after you gave your insight. Thanks again.