1099 s sale of rental house

[zhijlu]

I sold my rental house at a lost (bought 2007, lived in it for several years then rented for several years, finally sole for 60% of what I paid for).  After enter all the info into Turbo Tax,  the code said I did not have any gain and deleted the whole thing.  Where should I put in the 1099-S I received?  The house was on my tax form for several years, rented out most of 2017.  Under sale contract Jan. 2018 and sold in March 2018.  Since I did not rent it out in 2018, Turbo Tax deleted this house as rental and asked me to report as sale of rental property.  

Now I have reached the end of Federal Tax, but was never asked to mention the 1099-S I got.  

What did I do wrong?

[Carl]

Basically, you don't enter the 1099-S anywhere. But the fact you received a 1099-S means the IRS has a copy of that 1099-S. So you are required to report the sale *no* *matter* *what*.
You need to start your tax return over from the beginning so you can re-import the rental data from the .tax2017 file. To do that, close the program completely. Then delete the .tax2018 file located in the documents/turbotax directory. Now fire up TurboTax 2018 again and it's "as if" you are starting the program for the very first time.
Now, because of a lack of clarity in tax law, when asked how many days you rented it in 2018, you ***MUST*** enter at least 1 day. The fact your rental income for the 2018 tax year will be zero doesn't matter and it's irrelevant. Additionally, your days of personal use will be ZERO.
So work it through again using the guidance below and please post back if you have more questions.

[zhijlu]

Thanks!  Got it!  I omited the sale business for lost section and check no instead yes.  I was able to put in the 1099-S amount there.

[zhijlu]

I got only 50% of the check and the other half was given to my son (he did not pay for the house, did not receive the rent and did not file tax for the house, but since his name was on the title, the closing firm insist split 50-50.  As asked the question to IRS help hot line but they had no answer for me.  I posted this question yesterday and got an answer that I have to file 50-50 with my son.  In this case, I ended up enter everything in half (hence cannot even put 1 day in the number of days I rented).  Other wise, I will end taking the whole depreciation amount from previous yeas but the proceed would not match the 1099-s.  Even with 50-50, my son's tax from will still not be technically correct, since the 50% depreciation amount he will put in was claimed in my tax forms, not his.  I protested during the closing, but was not given one check instead of two.

[Carl]

That's a problem. If "YOU" are the one who took all the depreciation, then "YOU" are the one who has to recapture it. If your son recaptures depreciation that he did not take, I can practically guarantee him that he will be audited 24-36 months down the road and it will not be a pleasant experience. It will also $COST$ him quite a bit.  Additionally, it's a 100% certainty that if you did not recapture all the depreciation you took, you will be audited too. Count on it.
"Other wise, I will end taking the whole depreciation amount from previous yeas "
Since you took 100% of the depreciation in prior years, you don't have a choice here. You are "required" to recapture every single penny of the depreciation you took.
" I protested during the closing, but was not given one check instead of two. "
Your son should have immediately endorsed his check over to you. Period.
Then, if you wanted to split the total profit with him, that's your choice and that split does NOT get reported on ANY 1040 tax return.
It would be handled differently with  IRS Form 709 - Gift Tax Return which has nothing what-so-ever to do with "anybody's" tax liability. In fact, the name of that form 709 is even a misnomer because "NOBODY" will pay ANY taxes on your "gift" to him. All you're doing with the form 709 is fulfilling a legal reporting requirement, and that's it.

[zhijlu]

Thank you so much for the advice!  All I wanted is file correctly.  Please correct me if the following would still be wrong:  I will file with half of the cost, half of the proceed (my 1099-S amount), and all the depreciation I claimed in the past years.  This will end up with some gain and I will pay tax on it.  My son will file with half of the cost, half of the proceeds (the 1099-S under his name) and 0 depreciation.  He will end up with a business lose and get some refund.  It will be OK as long as it is legal.
The house was bought  when he went to school and he asked to have his name on title (also my wife's name), then rented out when he graduated (could not sale by 2011~2012).   My son was out of our state at the closing time, but given all right to our attorney.  His check was deposited to a joint account with my name (I used it to send him money when he was in school and did not close after he graduate), then  transferred back to my own account the next day.  There was no intention to share the profit.  I did not reject the way they cut the checks hard enough, since I thought I could get the money easily (without know all the tax problem and 1099-S).   I have asked IRS help line last March, tried to make appointment with IRS field office, been referred back to IRS help line (only staffed to answer 2018 tax questions in Jan 2019), been told they do not know what to do but have to tell me to read all the IRS online documents.  

[Carl]

"I will file with half of the cost, half of the proceed (my 1099-S amount), and all the depreciation I claimed in the past years."

As I understand it, you paid "ALL" the costs to include all the purchase price. Additionally, your son *NEVER* reported *ANYTHING* concerning this rental on *ANY* tax return he ever filed in his entire life. So if my understand is correct, you will claim ALL costs, and ALL proceeds. Since your son did not pay a penny for the property and did note make a penny off the property while it was rented, he will report *N*O*T*H*I*N*G* concerning this rental on his tax return. He has no reason to file a SCH E or a SCH D to report the sale of *ANYTHING* on his tax return.

 "My son will file with half of the cost, half of the proceeds (the 1099-S under his name) and 0 depreciation.  He will end up with a business lose and get some refund."

Then when the IRS catches this 24-36 months down the road, you will BOTH be audited and it will not be pleasant. Any refund your son may have gotten, will be wiped out by all the fines, penalties, back-taxes and interest on those back taxes he will have to pay back to the IRS.

" It will be OK as long as it is legal. "
There is nothing legal about reporting events on a tax return that did not occur. There's also nothing legal about *NOT* reporting "ALL" events that occurred by the tax filer for which those events *did* occur.

"There was no intention to share the profit."

Because you didn't, and now you've removed any and all possibility of doubt on that front. While your son was in college he was still your legal dependent (weather you actually claimed him as such or not.) and you provided him support.

"they do not know what to do"

That's no surprise. This time of year most of your walk-in IRS tax assistance offices and tax advocacy advocate offices are manned by seasonal temp hires. Ever notice how young they are? They have little to no tax experience. But if/when you get audited, it won't be a "temp" auditing you.   
Now I myself am not a lawyer and definitely not schooled in tax law. But having been a landlord and dealing with rental property for the last 25 plus years, I do know what I'm talking about "on this particular issue."
If your son received a 1099-S for his half, then he needs to give it to you. There's no requirement that "HE" report anything, since he did not actually have any "skin in the game" on this rental so-to-speak.

[zhijlu]

Thanks for your help, but please discuss/advice further!  I know I should claim all, but the two 1099-S caused all the problem.  It seems he and me will be audited anyway (I defiantly hope not).  There seems no way for me to correctly file with all the truth. The IRS help hot line person told me that anything beyond standard IRS forms attached to my filing will be through out without reading.  Since the total deal was a lose,  Can my son file for $1 lose by putting in less than 50% of the cost (the 1099-S amount +$1,  The Turbo tax do not asking for 1099-S info in case of gain, but allowing reporting 1099-S in case of lose) and I file for the balance (file the cost not 50/50 but total less what my son will file)? In that case, if there is an audit to my son, the disputed amount would be very small.  If IRS going to audit me, too bad, I was the one did not reject the title company cast the checks and issue 1099-S.  I and my lawyer asked for one check, but they would not do it.  Since I was so happy to get ride of the house and has bank account to make the money go to my own account right away, I deposited it that day.  Sham on me!
By the way, my son was second year in med school when we bought the house.  The house was not rent out until three years later when he graduated and left.  He was not my legal dependent by then.
One of the 1099-s is under his name with his SS number.   I understand that he cannot give to me but has to file in his tax return.  Please correct me if I am wrong.  
Tried to call IRS to make another appointment in field office:  they are too busy to answer any call, with a message asking me to call "another day"!

[Carl]

You both very well may be audited. But if you report the 100% honest truth on your tax return as it should be, and not as your closing agent said, you'll be fine. Basically, your closing agent screwed up. Both of you were at the closing. Both of you agreed that only one check should be made out, and that one check should be payable to you.  *YOU* paid that closing agent, and I'm surprised you didn't stand your ground and insist that closing agent do it "YOUR" way. The closing agent does not have "ANY" final say in this. The seller's have the final say, and if the closing agent doesn't like it, then that's just to bad.
I myself have always closed on property with my family lawyer present, so when these piddly-assed things start to pop up, they usually "go away" rather quickly. 🙂 The funniest part of this is that my family lawyer doesn't know a damn thing about real estate law or tax law. But for $100 for him to show up at a closing to ensure it goes smooth, has paid for itself on more than one occasion.
Remember, your closing agent is not a tax authority. But then, I don't claim to be such authority either. However, after 25 plus years of dealing with this stuff on rental property, I've been there, done that, got the T-Shirt.
Generally, such an audit is NOT where the IRS knocks on your front door for a sit down. More than likely it would be a paper audit where the IRS sends you a letter in the mail that basically says to substantiate your claim. You have the financial history records to prove it (bank statements and the such) so it's no big deal. For a situation like yours, more than likely all it will take is a notarized affidavit (probably from both of you) stating the truth, and you're done.
Besides, when you sell real estate at a loss, you're generally not required to report it on your tax return anyway. However, if you receive a 1099-S as you did, then you're required to report it, gain or loss.

[Carl]

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 ahve a selection on it for "I sold or otherwise disposed of this property in  2018". Select it. After you select the "I sold or otherwise disposed of this property in 2018" 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 2018" 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.