Yes, when you sell a Rental Property and its assets, you must allocate the sales proceeds to all assets that were sold. This includes appliances and improvements that have been depreciated. You may use any reasonable method to allocate the sale.
One option is to allocate the a portion of the sale equal to the remaining adjusted basis of depreciable assets first, then apply the remainder to the rental property itself. To do this, you would first need the adjusted basis for the depreciated assets as of the date of the sale. If you sell during the year, you must include depreciation expense for the partial year. This method results in no gain or loss for the sale of depreciated assets.
Your other option is to report a sales price of zero to the depreciated assets and enter the enter sales proceeds to the rental property. Since capital gains & losses are netted together on your tax return, this method should generate the same result as allocating the sale.
Note that in TurboTax, you must report the sale for each item under Assets/Depreciation. There is no option to include all assets in one sale transaction.
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