As far as this property, I have two asset entries; one line item for the property (asset & land) and one line item for the new roof. Based on your response, I should have/ add another asset for the sale of the property. Is that correct?
No, you will *NOT* add a third asset entry. That would be totally wrong.
Based on my property tax bill, the land is valued at 20%
For reporting the sale, you can burn the property tax bill. it's totally and completely irrelevant.
My plan is to allocate 80% of the gain and fees to the asset and 20% to the land.
Percentages are irrelevant. Since you sold the property at a gain, you *MUST* show a gain on each individual asset. Elect to edit the property itself. See the COST and LAND boxes? Now the amounts in those boxes, you will *NOT* change under any circumstances and with no exceptions.
What's in the COST box is your cost basis for the "ENTIRE" property - land and all. What's in the LAND box is how much of the amount in the COST box is allocated to the land. Subtract LAND from the COST and that's the amount allocated to the structure. It's also the amount that your depreciation has been figured on since you placed the property in service.
For allocating your sales price, your sales price for the land must be "at least" one dollar more than the cost of the land that you see in the "LAND" box. Then what you have left over is allocated between the structure and the new roof, ensuring that you allocate so that "BOTH" the structure and the new roof show a gain. It flat out does not matter if you show a $500K gain on the structure and a $1 gain on the roof. But since you sold at a gain, you must show a gain and each and every single asset even if it's only a $1 gain.
To make it easier, you only need to allocate your sales expenses on the "main" asset between the land and the structure. That makes your sales expenses on the roof, zero. The IRS isn't overly picky about allocation of sales expenses. So if you want to do a 20/80 split between land and structure, that's not a big deal. Easier math on the brain that way to ensure you actually show a gain on all assets after deducting your sales expenses.
Should I 'sell' the roof for a $1 since it's part of the house and lose the remaining depreciation?
No. Do that, and you've sold the roof at a loss and the remaining asset at a gain. You need to allocate your sales price so that the roof is sold for "at least" $1 more than it's cost as shown in the COST box on that specific asset. Allocate a sale price lower than what you paid for it, and chances are, the program will screw that up mathematically and you'll never know it and never be able to figure out why your return continues to be rejected by the IRS so matter how many times you try to e-file.
