In short, reporting the sale of a rental requires calculating the adjusted basis in the property. This is generally the original cost minus depreciation taken or allowable plus the cost of the improvements. Once this is determined, it is subtracted from the sale price to determine any gain or loss.
If you’re using TurboTax, you will see a question in the rental property section, “Tell us about your situation this year check the Sold or disposed of property box along with any other boxes that may apply and Continue.” You will have the opportunity to enter the improvement costs, sales expenses, and other information related to the sale.
If you have not been taking depreciation, you may have to report an adjustment to current expenses for the rental to account for it. This will require filing an additional form called a 3115
Here are some additional resources regarding sales of rental property that may help:
IRS publication on sales of assets
How to report in TurboTax
Hope this helps!
Cindy
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