If between the time the last renter moved out and the closing date of the sale you did not live in the property as your primary residence, 2nd home or vacation home, the sale is reported in the Rental & Royalty Income (SCH E) section of the program.
If after the last renter moved out you made property improvements and then sold the property, the property improvements are *STILL* added in the assets/depreciation section. However, since you did not rent the property after completing the property improvements (because you sold it) you will enter a ZERO for percentage of business use of that property improvement.
This will add to the cost basis of the property as it should, yet the specific property improvements will not be depreciated since they were never placed "in service" and rented out to a paying tenant.
Depending on one's specific and explicit situation, there are those situations where the program will not accept zero percent business use. In such a case, enter 1% business use and make the "in service" date the date you closed on the sale. That way, if any depreciation is taken, it will only be a few bucks, and who cares.
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 2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" 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 2019" 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.
