How do I report sale of a rental property and recapture all the depreciation from previous returns filed with TurboTax? What is the workflow?

The property was purchased in 1992, all deprec/amort was calculated by TT since then.  No rent was collected in 2018, it sold in Feb. 2018.  The sales figures are all on the settlement documentation (ALTA Settlement Statement - Combined).  Not a HUD form.  Original purchase price  was $92K, selling price $141K but there have been many expenses along the way, all recorded in TurboTax and depreciated with the automatically selected schedules.  There was one post sale expense when a problem turned up.

In the interview I entered that the property was sold, and no rent collected, and TT deleted the rental entry!   So I can't even look at the old data in the program, although I have the old returns.  If I delete the return and start over, is there some way to get TT to import the relevant information and move it to the sale of business property and into the correct forms?

Simply put, how do I use TT H & B to create my tax return in this situation?  Is there a document available?  What is the workflow?  Do I have to go back to all my old returns and if so, what numbers do I use and how?

thanks,

Steve

 

Carl
Level 15

Investors & landlords

Seeing that it appears you did everything right, start to finish with the tax reporting over the years, this will be a piece of cake to report the sale. You only missed one thing and as far as I can tell, it's a program fluke. While you will report zero rental income for 2018, you *MUST* indicate that it was rented for "at least" one day. Otherwise, the SCH E gets deleted and you get the "wonderful" opportunity of deleting the .tax2018 file in your documents/turbotax directory and starting over. (That's the only way to re-import the data you deleted against your will)

You probably don't need to below guidance, but I'm providing it anyway in case you're not aware the TTX program "can" have issues with the SCH D if you're not aware of the below.

Reporting the Sale of Rental Property

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will ahve a selection on it for "I sold or otherwise disposed of this property in  2018". Select it. After you select the "I sold or otherwise disposed of this property in 2018" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets.  You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset.  Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically when working through an asset you select the option for "I stopped using this asset in 2018" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.


chreechree
Returning Member

Investors & landlords

Thank you for this answer as I have the same issue. My rental is gone, and if given the option, that is, if I'd understood that TT was truly about to delete my rental, I would've told it not to. I am very upset that after hours of work, I have to start over. Sure, it will go faster round 2, but I still have to start over. Plenty of people put property up for sale that doesn't sell until the next calendar year. This is something that really needs to be fixed in the software.
Carl
Level 15

Investors & landlords

Just remember, if the renter moved out in 2017 and you sold it in 2018, then your days of personal use is a big, fat ZERO, and days rented will be 1 (ONE). The fact you show no income in 2018 for that one day is no big deal. Consider this:
Tenant rent period runs from the 2nd day of the month, through the first day of the next month. So they pay the month's rent on Dec 2nd. The last day they can occupy the house will be Jan 1 of the following year. So it's rented for one single day in 2018 with no rental income reported in 2018, because that one day was included in the month's rent that was paid on Dec 2 in the prior year.
That's just the analogy. I don't know anyone who has a renter move out and then closes on the sale within 30 days. Not impossible of course. But extremely rare.

Investors & landlords

Glad my question (and the answer) was of help.  Now if TT will just fix the bug!  I have found several such corner cases over the years.
Carl
Level 15

Investors & landlords

It's not a bug. If you claim you didn't rent the house out for one single day in the tax year, then legally speaking it's not rental property and you can't claim it to be such. It's just the way the law is written, not the way the program is written.
Carl
Level 15

Investors & landlords

To further clarify, all you're doing is confirming that it was still classified as business property, and that you did not live in the house for one single day as your *primary* residence, while it was classified as a business. So even if the house sat empty for six months until you sold it, it still remains business property and it still depreciates until the date you close on the sale.

Investors & landlords

I understand.  However, this is nowhere made clear in the "interview".  At least not that I saw, and I read the "help".  Before any data deletion occurs, the user should be queried as to whether they really want to do that, and the ramifications should be explained.  Instead, the deletion was automatic, affecting disposition of business property.  There are other instances in TT where a query is given before a data deletion, to prevent similar cascade effects - and the same should be done here as well.   So while this isn't technically a bug, it is an omission in the UI spec.  Corner-cases like this are tough to predict for a software engineer who doesn't totally understand the tax issues- so let's see if Intuit fixes this one now that it is exposed!  It is a PIA for users, who bought H&Biz to deal with biz issues.  Maybe Inuit should give us a free copy of next year's software!
Carl
Level 15

Investors & landlords

Oh I'm not in disagreement with you, and owning 3 rental properties myself I know exactly where you're coming from. The issue is however, that the way the law is written and the way programming works in the technology industry, there are some things that just can't be done without bloating the program more than it presently is, thus slowing it down even more. I'm sure you'd agree that taking 10 minutes from the time I click the TTX icon on the desktop, to the time I can actually start entering data is already ridiculous as it is. With two 3.6Ghz processors and 64Gb of member, my computer isn't old and slow either.
"Maybe Inuit should give us a free copy of next year's software! "
ha ha ha! Many who have never owned or ran their own business seem to have this mistaken impression that a business is "in business" to serve their needs or provide a product or service. While that may be one of many reasons a business exists, there's only one root reason why any business is created in the first places.... "to make a profit" and that's it. If the business doesn't make profit, it lays off all employees and closes the doors.
I do find it humorous at times with some of my clients (I do networking) who think doctors and dentists are carrying all that money in wheelbarrows to the back room and dumping it in the safe. It's not at all uncommon for a medical professional to gross $100,000 a month without even trying. But what folks don't take into account is that the doctor or dentist has to pay their overhead out of that. I've done work for doctors who didn't collect their own paycheck for a month, because after paying all the bills for the month (utilities, employee payroll, drug costs, etc.) there wasn't a dime left.

Investors & landlords

Well, we are in agreement.  I was indulging in wishful thinking.  Not serious about the free version, having had my own business, and worked for several startups, I know how these things work.  Even though I'm not a particularly good businessperson.
 
I am now working through the asset list, which is annoyingly long, and have a couple questions.

 1) You said: "Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. "  Why is that?  I can do it by reducing the selling price of the primary asset, the house, by the undepreciated value of the other assets.  But what is the problem with just leaving the value in the house and putting the value of the asset at 0, which would make it a loss and I would think, subtract off the total?  

2) I had a refinance cost in the list as an intangible asset, which has no depreciation.  What is the correct way to handle that?

BTW, I couldn't have done this without your help.  
Carl
Level 15

Investors & landlords

1 - Because the TurboTax program has a problem dealing with gains *and* losses on assets from the same rental activity. It tends to really screw up the SCH D and the 4797.
2 - I don't think you mean intangible asset. the correct term for your refi costs is "amortized asset". Remember, capitalized assets are depreciated over time and that depreciation is recaptured upon sale. Whereas an amortized asset is not depreciated - it is deducted over time and there is no recapture. Basically, if you have "in fact" correctly classified those refi fees as an amortized asset, then if they're not already fully deducted, the program will deduct the remaining balance "for you". The trick is, when working through the asset you'll select YES on the "Special Handling Required" screen, so that you're not prompted for sales information on the amortized asset.

Investors & landlords

It was indeed an amortized asset.  Done with the house sale!  Whew.  Thanks Carl!

Investors & landlords

my question is where I put all the repairs and new water heather and new hardwood floors I put 2 month before I sold the rental in order to sale.  thank you Sorin

Investors & landlords

I would put it all in as repairs, so there would be no depreciation calculated - just a deduction from income from the rental property.  However that may not be technically correct.  You can also enter the items as improvements subject to depreciation.  Try it both ways and see if there is a difference.

Investors & landlords

So if I put as improvements they ask me if I sold them? what date? Also what will be the price for main building now?  asset sale price minus all the improvements I listed ?