Investors & landlords

Question for the Tax Experts

• Please confirm that my calculations above and thinking is correct.  
  • See my notes below under Tax Treatment.
• 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?
  • Yes, that is correct.

Tax Treatment

First I will place an example of how you prorate the selling price to each assets including the land.  

For any asset, such as appliances, that really have no value because they are past the recovery period of five years you can use a zero.

Use the original cost of each asset listed on depreciation, add those together then divide each one by the combined total to find the percentage of the cost for each asset.  Use that percentage times the sales price and sales expenses to find the selling price/sales expenses for each asset. If you want you can check the allocation of building and land in your county real estate tax office, on file now.

Example:  Original Cost (of each asset on your depreciation schedule)

$10,000 Land                = 13.33% 

$50,000 House              = 66.67%

$15,000 Improvements  = 20%

$75,000 Total                 = 100%

Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.

Passive Activity Loss Entry:

Assuming your passive losses were carried over each year, this will be a separate and identifiable entry which will carry to the Schedule E.  The full remainder of passive loss carryover is used in the year of sale as an expense. This is combined with your overall rental gain or loss to your Form 1040. 

• When you are on the screen 'Do any of these situations apply to this property?' (Property Profile section), be sure to check the box under Carryovers. 

• Please advise on the depreciation treatment and depreciation recapture treatment and nuances
  • See my notes below on entering the sales price/expenses for each asset inside the rental activity.
• 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.
  • See my notes below.

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Search (upper right) > type schedule e > Enter > click Jump to .... link
2. Answer the questions and on under Rent and Royalty Summary, click Edit
3. Click Update to the right of Assets/Depreciation.
4. Do you want to go directly to your asset summary?, click Yes and Continue
5. Click Edit to the right of each asset to be disposed of
6. Go through several screens until you get to Tell Us More About This Rental Asset
7. Click on This item was sold…….   And continue to answer the questions

You might also review information here.