Allocate gain from sale of rental property

[MF216]

I was divorced in '23 and a jointly owned rental property was sold in the settlement.  Each of us received 50% of the gain.  How/where is this reported in turbotax so that we each pay tax on the 50% we received.

?

[KrisD15]

It is unclear as to how you will enter the final rental activity. 

Before you report the sale, you need to report the expenses and income for 2023.

After this is done, whether on your return or that of the other owner, you both report the sale. 

In your situation the easiest thing might be to report in the rental section that the rental was converted to personal use in order to close out the rental. 

If the rental will not be reported, (for example, the rental was converted prior to 2023) enter the sale in

Less Common Business Situations

"Sale of Business property"   START or UPDATE

Select the top choice, "Sales of business or rental property..."

Enter your half for selling proceeds, cost, and depreciation.

Since this was a rental, Depreciation Recapture is figured first. 

For example, if you purchased a rental for 200,000, took 125,000 depreciation and sold for 250,000 

You would have 

125,000 depreciation recapture which is Ordinary Income

50,000 Capital Gains. 

You cost includes building, land and improvements plus certain fees you paid at closing when you purchased.

Your proceeds includes the selling price less certain selling fees. 

If you have a 1099-S to enter or need to claim rental expenses first, please continue the question and add a few more details. 

[MF216]

• The previous response does not explain how or where to express that the calculated capital gain needs to be split between the two co-owners.  The calculation is based on total basis, total sales price and total depreciation taken.  If both parties report that information we will both pay the total tax on the total gain.  On what form/line do we identify that we each received 50% of the gain.

[DianeW777]

Let's break it down as best we can. 

I have to assume the rental activity is on only one of your returns unless you split everything to enter half for the rental property to report on the return of each spouse. The instructions below will follow this train of thought.  

First the rental income and expense:

• Enter that as normal (50% on each return or on the return where it is reported).

For each rental asset use the following instruction and write down the total amount of depreciation for all prior years and the current year. When you are in the rental activity for 2023, you must select the 'Assets' section, then in each asset you must go to the screen titled 'Tell Us More About This Rental Asset'. 

1. Once you reach this screen for each asset, you must select 'This item was sold, retired, stolen, destroyed, disposed of, converted to personal use....' 
2. Next enter the date you stopped using the asset for rental purposes. 
3. Answer 'Yes' you always used this asset 100% of the time for business. (The percentage of use doesn't change until after conversion from rental to personal use.)
4. Select 'Yes' for Special Handling due to 'You converted the asset to 100% personal use'.

Next you will report the Sale of Business or Rental Property (50% on each return)

1. Wages & Income at the top
2. Scroll down to Other Business Situations
3. Select Sale of Business Property
4. Select Sales of business or rental property that you haven't already reported.
5. Answer 'Yes' to Do all of the following apply...?
6. Enter your sales information (See image below:(
   1.  Description of the Property (Second Home/Rental Home)
   2. Sales Price/Sales Expenses 
   3. Date acquired and date sold
   4. Sales Price
   5. Cost
   6. Depreciation

If you have more assets than just building and land  use the following information to allocate the correct selling price and selling expenses to each asset. This shows TurboTax how to report the sale.  Use the original cost of each asset listed on depreciation (all belongs to house B now) 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 (allocate 50% each). If you have only the building and land you will have two assets, the building (includes depreciation) and land (no 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.

                             

@MF216 

[DianeW777]

Let's break it down as best we can. 

I have to assume the rental activity is on only one of your returns unless you split everything to enter half for the rental property to report on the return of each spouse. The instructions below will follow this train of thought.  

First the rental income and expense:

• Enter that as normal (50% on each return or on the return where it is reported).

For each rental asset use the following instruction and write down the total amount of depreciation for all prior years and the current year. When you are in the rental activity for 2023, you must select the 'Assets' section, then in each asset you must go to the screen titled 'Tell Us More About This Rental Asset'. 

1. Once you reach this screen for each asset, you must select 'This item was sold, retired, stolen, destroyed, disposed of, converted to personal use....' 
2. Next enter the date you stopped using the asset for rental purposes. 
3. Answer 'Yes' you always used this asset 100% of the time for business. (The percentage of use doesn't change until after conversion from rental to personal use.)
4. Select 'Yes' for Special Handling due to 'You converted the asset to 100% personal use'.

Next you will report the Sale of Business or Rental Property (50% on each return)

1. Wages & Income at the top
2. Scroll down to Other Business Situations
3. Select Sale of Business Property
4. Select Sales of business or rental property that you haven't already reported.
5. Answer 'Yes' to Do all of the following apply...?
6. Enter your sales information (See image below:(
   1.  Description of the Property (Second Home/Rental Home)
   2. Sales Price/Sales Expenses 
   3. Date acquired and date sold
   4. Sales Price
   5. Cost
   6. Depreciation

If you have more assets than just building and land  use the following information to allocate the correct selling price and selling expenses to each asset. This shows TurboTax how to report the sale.  Use the original cost of each asset listed on depreciation (all belongs to house B now) 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 (allocate 50% each). If you have only the building and land you will have two assets, the building (includes depreciation) and land (no 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.

                                                  

@MF216