Please can you confirm the following:
Details
- Bought the property on January 2, 2010 for $500K and at that time the land was $200K and the building was $300K according to the town property tax record. Hence, the building portion of $300K has been depreciating on a straight line basis (27.5 years) since 2010.
- The current accumulated depreciation is $10,909 x 12 years = $131K. This depreciation will need to be recaptured. This is also the passive loss on this property as the rental income was offset by the property tax/interest/etc. Hence, due to income limitation rules, this $131K of depreciation kept building up as a passive loss each year and carried forward each year and could never be used.
- On 4/1/2022 the tenants left and we started repairs/improvements. The improvements were completed on 9/30/2022 and cost $120K. The house was listed for sale on 10/1/2022, went under contract on 10/31/2022 and was sold on 12/2/2022 for $700K.
- The real estate cost (broker fee, real estate sale tax, title, legal, etc) to sell was $50K.
Tax Treatment
- I will enter the sale price of the land as $200K. Hence, there is no gain or no loss on the land. In addition, there is no depreciation on the land.
- I will enter the sale price of the building as $500K. The gain on the building is: $500K - $131K (passive loss not allowed previously) + $131K (depreciation recapture) - $120K (2022 building capital improvements) - $50K (selling expenses) - $300K (original cost basis) = $30K gain.
Question for the Tax Experts
- Please confirm that my calculations above and thinking is correct.
- Based on your earlier response, I will not enter the $120K 2022 capital improvement to the building as an asset and instead treat it as a "selling expense", correct?
- Please advise on the depreciation treatment and depreciation recapture treatment and nuances
- Please guide me as to how I should enter this in TurboTax as it looks like the program is not working for this as it should.
