Rental property sale

Renovations on rental property started 2019 into 2020. 2019 no rental income. Rental property fully depreciated (bought in 1981). Sold property June 2020. How should I report renovations? And how to report sale of rental property?

Carl
Level 15

Investors & landlords

First, do NOT convert the property to personal use. There's no need for two reasons.

 - The property is already fully depreciated.

 - The property improvements done after the last renter moved out were never placed "in service". So those property improvements will not be depreciated.

Since your property improvements were not completed before Dec 31 2019 *AND* because they were never placed "in service", you will *NOT* under any circumstances what-so-ever enter "ANYTHING" concerning the property improvements *or* the sale on your 2019 tax return. It will *ALL* be entered on your 2020 tax return which you will not complete until next year. Therefore, there's no need to go into the data entry details until you start your 2020 tax return next year.

 

 

Investors & landlords

Thank you so much for your expeditious answer.  You've made the path so directly clear.  There is so much conflicting information out there.  The IRS is not the same.  They do not answer anything beyond simplistic.  They've eliminated department and yet our taxes pay for them.

 

Do you recommend I resume with Deluxe Turbo Tax or shoot for the higher level which is?

Carl
Level 15

Investors & landlords

I take it you're using the CD version of Deluxe that you installed on  your computer. I'm fairly confident you can report your sale with that version next year. But there's no way of knowing what Intuit will change in the program next year. Therefore, it's impossible to give you a definitive response until they release the 2020 version - usually around Dec.

Investors & landlords

I've been going around in circles trying to estimate 2020 Federal taxes using 2020 updated data onto 2019 tax program.  Having difficulty in navigating where to enter Settlement Statement/Closing Costs data as the seller of rental property, (sales commission, all the different fees and misc. taxes). Does the renovation costs go into program by dividing into different costs sections (new kitchen, new carpeting, floors, appliances) or as one big figure about $11,000?

Carl
Level 15

Investors & landlords

DO NOT do this if you used the online version of TurboTax to complete and file your 2019 tax return. Otherwise, you *WILL* lose your .tax2019 file FOREVER with no possibility of recovery.

Assuming you used the CD version of TurboTax 2019 to complete and file your 2019 tax return, first make a backup of the original .tax2019 file located in the documents/turbotax directory on your computer. You will restore this file after you are finished playing around.

In the assets/depreciation section enter your property improvement cost and classified them as Residential Rental Real Estate. Enter the "same" "exact" "amount" in the COST box, and the COST OF LAND box. This ensures your property improvements done "AFTER" the last renter moved out will not be depreciated. Yet it still adds to your cost basis as property improvements should. If you are "forced" to enter an in-service date, then make it 12/31/2019 for now.

Once that's done, follow the below guidance to report the sale of your rental property. Since this is just a mock run to get somewhat of an idea of what your 2020 tax liability will be, just make your sale date 12/31/2019.

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 have 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.

Investors & landlords

Sorry!  I left to eat something then fell asleep.  Most rude of me.  I wish to thank you very much for your answer and generosity in sharing your knowledge.  Thank you very much!

Carl
Level 15

Investors & landlords

I left to eat something

Understand that this forum is not real time. It can sometimes take hours or a day or more before someone responds to a post. It's not like we're sitting here waiting.