the IRS gets to tax you twice.
Exactly! That's your "penalty" for not having taken depreciation in the first place, when you were required to.
For the sale your cost basis is "NOT" what you paid for the property originally. Your cost basis is:
What you paid for the property originally
PLUS
What you paid for property improvements
MINUS
All depreciation taken on the property. If depreciation was not taken as required by law, then you still have to subtract the depreciation you "should" have taken.
The result is the cost basis you're required to use for determining any gain or loss on the sale.
If you did "NOT" take depreciation on the property as required by federal law, then no matter what, you need professional help to report this sale. (You'll already been informed by the 3115 which is not simple.)
If the property was sold for "LESS" than the FMV when the property was placed in service, then you can use TurboTax to report the sale in the Rental & Royalty Income (SCH E) section of the program.
If the property was sold for "MORE" than what you paid for it, then you can use TurboTax to report the sale in the "Sale of Business" section.
If you sold the property for a price between what you paid for it originally, and the FMV used for depreciation when you placed it in service, then you can "NOT" use TurboTax at all to report this sale. You will need to seek professional help. The TurboTax program can not "correctly" handle this specific situation.
