depreciation on rent to own property

[arethereanynottaken]

I bought a house in 1996 that has been paid for since 2001.  This year we started a rent-to-own contract on it and received two payments so I am trying to set it up as a rental property in turbotax.  I got most of the way through and get to a screen that says my property will be depreciated by $45000 (original purchase price) over the next 27 ½ years.  I do not understand this.  I have already owned it 25 years.  I put the purchase date in a few screens earlier and it is the address I have used for TurboTax for twenty years.

How do I do this correctly?

[DianeW777]

Let me help clear this up for you. This is considered an installment sale for tax purposes and it's your choice if you want to report it that way, or all in the year of sale. It is not a rental activity if it was not previously rented.

If this house was never used as a rental report the sale using the link below and you can stop reading.

• How do I report an installment sale in TurboTax?

Consideration if it has been a rental house before 2021: Any gain that is attributable to the extent of depreciation that was expensed in prior years will be taxable in the first year the contract begins, regardless of the amount of payments received.

You will report the installment sale when you go through the house asset (and any other rental asset you might have for this property) in your rental activity.   

Sales price and Sales Expenses by asset (If already on Schedule E as a rental): What is an installment sale?

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 some assets no longer have a value you can use zero for those such as an appliance that is 10 years old.

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.

You will be asked if you want to report this using the installment method.  Answer Yes or No based on your decision, then continue to finish the sale of each asset (building and land, and other assets). See image 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 Income & Expenses
2. Under Your income and expenses, scroll down to
3. Rental properties and royalties, click Edit/Add
4. Do you want to review your rental?, click Yes
5. Under Rent and Royalty Summary, click Edit
6. Click Update to the right of Assets/Depreciation.
7. Do you want to go directly to your asset summary?, click Yes and Continue
8. Click Edit to the right of each asset to be disposed
9. Go through several screens until you get to Tell Us More About This Rental Asset
10. Click on This item was sold…….   And continue to answer the questions

You might also review information here.

[arethereanynottaken]

That was very helpful.  Knowing the right vocabulary makes a big difference.