4797 Form 2021 Capital Gains and Calculating Cost or other basis plus expense of sale

[agordon23]

After answering questions in Turbo Tax about the July 2021 sale of our rental home, the Turbo Tax Desktop version popped up a box for us for the 4797 Form that says enter a description and amount to calculate Cost or other basis plus expense of sale. We entered the price of the home when we bought it, the closing costs to us when we bought it, the closing costs to us when we sold it. Then we also entered some durable improvements/repairs we had to make to the house while we owned it (we have the receipts but they are not all from 2021). This box is greatly affecting the amount we owe from any capital gains so we looked at the actual 4797 Form. We can't tell if Turbo Tax is having us calculate an amount for Part 1 line 2 Column f or Part 3 line 21 Property A. Our question is whether we can enter all the costs we described above in this Turbo Tax pop up window for the 4797 Form?

[PatriciaV]

Please clarify if you had reported this Rental Property in TurboTax in prior years, or if you added it this year before you reported the sale.

[agordon23]

Patricia,

We reported this property (regular depreciation calculation) through Turbo Tax in 2015 and 2020, we did not report the depreciation in the other years; we started owning the property in October 2013. We calculated the depreciation to be $41,992 in total (all years) and entered that into Turbo Tax this year. It seems like Turbo Tax is recognizing previous reporting on this property. The specific items we listed in Turbo Tax for the 4797 Form that we are questioning seem to be showing up in the 4797 Form Part 3 in the calculation for cost or basis line amount. It does not seem to be the total amount of the closing costs and repairs, it seems to be an amount calculated by some percent of the total. However, are all these items OK to list? It seems the depreciation of $41,992 in total (all years) is making the bigger difference in final calculations versus the closing costs and repair total amount is only making about a $3,000.00 difference in the final calculations in Turbo Tax. We don't want to risk entering unallowable expenses for an amount that is not that significant in the end.

[PatriciaV]

Yes, these items would be included in Form 4797 Line 21 (Cost or basis plus expense of sale):

1. price of the home when you bought it
2. closing costs when you bought it
3. closing costs (selling expenses) when you sold it
4. improvements (but not repairs) over the life of the property.

Line 22 should be your Accumulated Depreciation number.

Did you use this property for business the entire time you owned it? If you reported less than 100% business use, this could account for the application of a percentage factor. You might revisit the Property Profile and Sale of Assets sections of the Rental Property to review your entries in this regard.

[agordon23]

Thank you so very much for outlining what is appropriate to enter into TurboTax for the 4794 Form. We did not use it for rental the entire time we owned it. We reviewed the section you noted in TurboTax and it has that we placed the property in service in 2013 and another section notes we acquired it in 2006. Is there anything else (common pitfalls) we should be looking at or for to ensure we do this correctly?

[PatriciaV]

As long as you have confirmed your entries for dates, cost, and business use percentage, the calculations for this rental activity should be correct.

[RJSH]

Where is Line 21 Items you mentioned entered in TT for Rental property sale? I am following the Rental PRoperty sale steps and I do not see the place to enter. 

[RJSH]

I purchase a home in 2007 for $270,000. I lived in the house for 10 years and  rent out it Mid 2017 (moved to other house for main residence). I sold this house in 2021 August for $29,800. The depreciation I took over five years (2017-2021) is $13,000. I followed the step by step process in TT in the Rental Asset, and selecting 'I purchase the Asset' and "The Item was sold.....". I entered $298,000 in the Asset sale Information page.

I selected 'yes' for 'Did you use this rental property as a personal residency anytime after May 6, 1997 (not sure why it is asking for 1997 when I entered that I purchase this house in 2007). It is showing gain of $165,869 and Tax Due is showing $31,000.

It is not making sense am I getting a gain of $165,869?