When entering the "Cost" and "Cost of Land" information, does the "Cost" field include the total price (i.e. structure + land?).
Yes. Generally, that will be the contract price which appears on line 101 of the HUD-1 closing statement you received at the closing, when you originally purchased the property. (Assuming you received a HUD-1 at the closing.)
More concretely, lets say when I bought the property:
Purchase Price: 100k, Tax Assessed Land Value: 25k. The question is whether in "Cost", I put in $100k, or $75k?
You enter 100K on the COST box. Then when you enter 25K in the COST OF LAND box, the program (not you) will do the math to establish the structure value at 75K. It's the 75K the program will figure depreciation on.
One odd thing is that when you acquire the property, at no point do you enter the cost of the structure when initially setting it up in the program. But when you sell the property, it does separate the cost of the structure from the cost of the land (as it should).
To further clarify things, since you have more than the property itself listed in the Sale of Assets/Depreciation section, I'm presenting the below. Note that capitalization and bold is for emphasizing the importance, and is not a reflection on the intelligence of anyone reading it.My depreciation numbers are bogus, because I'm not taking the time to figure them. Then to keep things simple I"m not including sales expenses. But the math is what matters here, big time.
Purchased in 2010
COST = $100,000
COST OF LAND = $25,000
In 2013 I installed a new HVAC at a cost of $7000. Set this asset up in TTX to be depreciated over 27.5 years.
At this point, my total cost basis in the property is $107,000.
In 2021 I sell the property for $200,000.
I have taken $10,000 of depreciation on the structure
I have taken $2000 of depreciation on the HVAC
LAND Sales price is $40,000. I have a $15,000 gain on the sale of the land.
STRUCTURE sales price is $140,000. I have a $75,000 gain on the sale of the structure, and $10,000 of that gain is recaptured depreciation that will be taxed at the ordinary income tax rate up to a maximum of 25%. The remaining $65,000 of gain is SEC1250 gain that gets taxed at the capital gains tax rate.
Of my $200,000 sales price, I sold the land for $40,000 and the structure for $140,000 bringing my total to $180,00. I have $20,000 left to allocate.
HVAC sales price is $20,000. I have a $13,000 gain on the HVAC sale, and $2000 of that is recaptured depreciation which will be taxed at the ordinary income tax rate up to a maximum of 25%. The remaining $11,000 is SEC1250 gain that gets taxed at the capital gains rate.
Take note that I am showing a gain on all assets. This is important. When selling at a gain, if you show a gain on some assets and a loss on others, then the depreciation on those assets that have a loss is not recaptured. Instead, it gets included in the SEC1250 gain, meaning it will be taxed at the capital gains tax rate.
