When you sell a property, you include all assets on the Depreciation Report. The adjusted basis (cost basis) for each asset is the depreciable basis less prior depreciation less current depreciation.
Allocate a portion of the sales price and expenses to the land (if any) and all other assets included in the sale.
You may allocate the sale proceeds and selling expenses using any reasonable method. Most taxpayers use the adjusted basis at the time of the sale. Calculate the percentage of basis that belongs to the land, then apply that percentage to the sale. The remainder belongs to the asset (building and improvements).
Example:
- Total Basis: $80,000 for home & improvements (net of depreciation); $20,000 for land ($100,000 total)
- Percentage of Land Basis: $20,000/$100,000 = 20%
- Total Sales Proceeds (gross sales price) = $150,000
- Sales Proceeds for Land = 20% x $150,000 = $30,000
- Sales Proceeds for Asset = $150,000 - $30,000 = $120,000
- Total Selling Expenses = $10,000
- Selling Expenses for Land = 20% x $10,000 = $2,000
- Selling Expenses for Asset = $10,000 - $2,000 = $8,000
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