1. The federal error check tells me that not entering the land sale price is an error that should be fixed. Based on your advice, though, and the fact that I don't have any documant stipulating the price of the land, I am inclined to leave it blank. Correct?
Incorrect. You *must* have a sale price for the land. If you sold the property at a gain, then you *must* show at least a $1 gain on the sale of the land. That land "does" have a value associated with it. When you first entered that property in the tax year you started renting it, you were required to enter two values.
COST - What you paid for the property in it's entirety
COST OF LAND - How much of the amount you entered in COST was allocated to the land.So lets do some simple math here.
COST $100,000
COST OF LAND - $30,000
Simple math indicates you paid $70K for the structure and $30K for the land.
Now when reporting the sale, things are a bit different. (that's the IRS's fault, not TurboTax).
As you start working through t he asset you will see:
COST: What you paid for the property in it's entirety. That would be $100,000 in my example.
LAND: How much of COST was paid for the land. That would be $30,000 in my example.
PRIOR DEPREC. - The total amount of depreciation taken on the value of the structure. The value of the structure is COST minus LAND. The prior depreciation taken will be less than that value of the structure in your case, since it was rented for less than 27.5 years.
The next screen than asks, "Did you stop using this asset in 2019?" Your answer to that will be YES.
You'll be prompted for the date of disposition. This will be the closing date of the sale. DO NOT change the date acquired. Then continue.
Now you are asked "Special Handling Required?" and you will click NO on that screen.
Next you are asked "Was this asset included in the sale of your main home?" You'll answer this question NO becuase it was NOT your primary residence for at least two of the last five years you owned it, counting back from the closing date of the sale.
New here's where it gets serious. The screen clearly states, "You must divide, or allocate the sales price and expenses between the land and the asset (improvement) based on their fair market values." So if you sold the property for $150,000 there's no question you sold it for more than you paid for it and therefore have a gain on the sale. So you "MUST" show a gain on both the structure and the land.
ASSET SALES PRICE: $100,000 This is what I am saying I sold the structure for. My cost basis on the structure was figured at $70,000 on the date I placed it in service, I sold the property at a gain so I *must* use a sale price that is greater than my purchase price. Doesn't matter if it's greater by only $1 either. With my example, I"m showing a gain of $30,000 on the sale of the structure only.
ASSET SALES EXPENSES: $3000 My total sales expenses is $5000. I will allocate $3000 of that to the sale of the structure. So after subtracting the $3000 from my $30,000 gain on the structure, I still have a $27,000 gain on the structure.
LAND SALES PRICE: $50,000 This is what I am saying I sold the land for. My cost basis on the land was figured at $30,000 on the date I placed it in service. I sold the property at a gain so I *must* use a sales price that is greater than my purchase price. Doesn't matter if it's greater by only $1 either. With my example, I showing a gain of $20,000 on the sale of the land only.
LAND SALES EXPENSES: $2000 I had a total of $5000 in sales expenses and already claimed $3000 of it on the sale of the structure. So I'll claim the remaining balance on the land.
So in the end I have a property that I paid $100,000 for, sold it for $150,000 showing a preliminary gain of $50000. From that $50,000 subtract my $5000 of sales expenses and I have a $45,000 taxable gain.
Add to that $45,000 gain all of the depreciation I took on the property and that total is my total taxable gain.
2. As I am going through the Louisiana state return, should I use the adjustment for Capital Gain from the Sale of a Business? It seems that I should since selling the house (which I was using as a rental) "would allow the buyer of the assets to continue the business" (i.e., renting it as I did). Quoted passage from Louisiana Revenue Information Bulletin 10-017, as referenced by the TurboTax software. Is this correct?
