Investors & landlords

1.  Turbotax will take care of including all needed forms to submit to IRS for my 2020 return?

Yes. But the only forms actually submitted to the IRS (in electronic format of course) are those forms required for filing. The 4562's I informed you that you need to print, are not forms required for filing. But *you* *personally* will need to refer to them later when you report this sale on your 2020 tax return next year.

2. As the $18000 remodeling cost has been added in my 2019 return as cost-basis, so in 2020 return, this cost basis will be offset the capital gains I have when I sell the property, correct?

Yes, if you report it correctly of course. There are two possible ways to report this sale in TurboTax next year, and we'll use whatever you deem easiest/simplest for you. Regardless of which reporting process is used, the end result will be exactly the same.

Also is the closing cost I paid when selling the property can also be used to offset the capital gain as well?

You're referring to closing costs. The program deals with those just fine. But it's up to you to keep a detailed list of your closing costs. Thats because some of those costs add to the basis, while other costs are just a straight up deduction. 

Basically, costs associated with acquisition/deacquisition of the property are added to the cost basis. As the seller, you probably won't have any of these costs since it's the buyer that gets to claim them (regardless of who pays them). Costs associated with the loan (for you as the seller) will be a flat out deduction. You may have a few of those associated with the final payoff of the mortgage you had on the property prior to the sale.

Well, I am trying to offset the gains as much as I can so I don't have to pay too much capital gain tax in 2020.

For you as the seller, you're just not gonna have that much. One thing I would recommend you do "right now at this very instant in time" is that if you sold at a gain, go ahead and send the IRS a flat 20% of what you estimate that taxable gain is. You can do that at www.irs.gov/payments. Remember to print your receipt so you can include it as "taxes already paid" on your 2020 tax return.

If your state also taxes personal income, then send your state a percentage of whatever your "normal" tax rate is for your state. I would expect that to be anywhere from 5% to no more than 8%.

Now don't worry yourself to much about those payments. It's highly likely that when you file your 2020 federal and state taxes next year you will have over paid and will get a refund. But that's more preferable than being assessed and underpayment penalty and interest for under paying.

3. You mentioned that the depreciation recapture will be added to my AGI, I have followed your advice to convert the property back to personal use on 10/1/2019, and I do see the property's its own depreciation reduced around 1K. So is there any other ways I can do to make less recaptured depreciation being added to my 2020 AGI?

Nope. The IRS will get their money one way or another, sooner or later. For us rental property owners it's set up to make sure they get it later, so that they get more by hopefully bumping us into a higher tax bracket with the recaptured depreciation. It sucks, but it is what it is.

One thing is for that property improvement you entered for $18K, I assume you gave it an in service date of 12/31/2019. This ensures all the SCH E data will be imported into the 2020 return. So on  your 2020 return you "sorta" don't need to concern yourself with converting it back to personal use. Remember, you entered the cost of your property improvement in both the "cost" and "cost of land" box so that it won't be depreciated.

On the 2020 return you'll have the choice to covert that asset to personal use on 1/1/2020. But then you'll have to report the sale in the "Sale of Business Property" section. As it stands now, it looks like that's going to be the best way to report it, unless there are any major programming changes to the program. So this is the primary reason why you will need those forms I recommended you print out.

By the way, does your 2019 return have the IRS Form 8582 showing your passive carry over losses? Just curious at this point because it's more common than not for rental property to have carry overs every year.