Investors & landlords

If  you have an actual loss on any asset you are entitled to that loss in full in the year of sale.  More explanations are included here for you. 

When you sell property that has been used in business such as your rental and all assets that belong to the rental you report it in the rental portion of your tax return.  First see how to apportion the selling price and selling expenses for your sale.

Use the original cost (or fair market value on the date of sale) 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. (Choices would also be fair market value on the date of the sale or adjusted basis on the date of the sale, which is cost less depreciation.)

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.  I hope this example provides clarification to enter your sale. 

Any depreciation you were able to expense before sale lowers the cost basis of the property and is also recaptured up to the amount of gain on the sale.  As far as your furnace, the depreciation calculation ends on the date of sale.  This means that the depreciation last year and this year will reduce the cost of your asset, the remaining cost will offset the selling price.  When an asset is removed from service, sold in your case, the depreciation stops at that time.  Since you set the furnace up on 5 year recovery, you received a half year in the sale year because it was set up on the half year convention (tax terms).  This simply means you get a half year depreciation the year it is removed from service for sale.

When the sale of each asset is processed in TurboTax the net results for all assets will transfer to Form 4797, and then to Schedule D and/or Form 1040 depending on the results.

The gain up to the amount of depreciation on the 27.5 year property will be taxed at a maximum of 25% capital tax rate.  Any gain above the depreciation will be taxed at a lower capital gain rate.  Any equipment such as your furnace will be taxed at your regular tax rate up to the depreciation claimed.  If any equipment was help for more than one year, and if there is excess gain, it would receive capital gain treatment.

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

1. Click on Wages & Expenses
2. Scroll to Rental properties and royalties, click Edit/Add or Start/Revisit
3. Do you want to review your rental?, click Yes
4. Under Rent and Royalty Summary, click Edit
5. Click Update to the right of Assets/Depreciation.
6. Do you want to go directly to your asset summary?, click Yes and Continue
7. Click Edit to the right of each asset to be disposed of/sold
8. Go through several screens until you get to Tell Us More About This Rental Asset
9. Click on This item was sold…….   And continue to answer the questions

You might also review information here.

@SteveKoz