How do I determine the cost basis for a rental property I sold this year?

[dgriffin]

In 2009 I converted my main property into a rental property. I didn't get an appraisal at the time to determine the cost basis. Instead I looked on Zillow and looked at similar homes that were for sale or had been sold and determined a value from that. My question is there a way to get a better justification for the cost basis such as a retroactive appraisal. I sold the home in 2015 so I couldn't give an appraiser access to the home. Is there a chance that the cost basis can be adjusted if I have justification that the fair market value when it was converted is different that the value I used? Just want to make sure I'm not paying more or less than I should in taxes.

Any recommendations on my situation are appreciated.

[TaxGuyBill]

When you converted it to a rental, was Zillow's approximate Fair Market Value larger, or smaller than the Cost Basis (usually purchase price plus cost of improvements)?

What was the sale price in relation to the FMV and actual cost basis?

[dgriffin]

The original purchase price was 170k, the Zillow value at conversion was 150k, and the sale price was 210k. I didn't make any improvements.

[TaxGuyBill · Accepted solution]

Because the Sale Price was higher than your Adjusted Basis (purchase price, plus cost of improvement, minus depreciation), the Fair Market Value does not matter.  The basis for the gain is your purchase price ($170,000).

However, reporting it in TurboTax isn't particularly easy.

In most cases, the sale of Rental Property is sold in the rental section and you sell the 'asset' of the house.  However, if the property was originally a personal-use property and it converted to a rental property when the Fair Market Value was less then the Cost Basis (usually the purchase price plus cost of improvements before it was a rental), it is reported in the "Sale of Business Property" section.

Go into the "asset" for the property in the Rental section, and indicate that you sold it.  When you get to the screen that asks about "Special Handling", say YES.  Then it will ask you to enter the date of the sale (do NOT enter the sales price).

Now figure out how much depreciation you took on the property, including the current year.  It may be helpful to print out the 'Depreciation and Amortization' worksheet (you will need to pay before you print it).  It is the side-ways worksheet.

Then go to "Sale of Business Property" and enter the information that it asks for, using your purchase price ($170,000) for the original basis (you may need to subtract depreciation from that to get your "adjusted basis", I don't remember exactly how it asks for the information).

[dgriffin]

Thank you for this information.

[datasleuth]

Thanks for this info.  It helped me input it correctly in TurboTax. 🙂

[Jackljr]

After I enter YES in the SPECIAL HANDLING SCREEN mentioned above, I then enter the sale date, and it takes me back to the summary screens for the rental assets (I have 2 assets listed for the rental property:  1 asset for the condo, and I added an additional asset a few years later for outdoor furniture, grill, and landscaping items that I left in the unit and have now sold as part of the sale of the condo).  Where do I list the sale price of the condo, and the adjusted cost basis of the condo, in order to calculate the net amount I pay capital gains tax on?  Also, can I add the outdoor items I mentioned above to the cost basis for the condo since I included these items in the sale of the condo?   I am worried that turbo tax is not calculating the tax correctly on the sale of this rental property.  I purchased it in 2010, lived in it full time until 2013, then moved to another state in 2013, rented it out until selling it in 2018.  Also.  the cost basis I used for depreciation is not the adjusted cost basis, it's the unadjusted purchase price ($365k).  I calculated the adjusted cost basis to be about $412k.  I need help.

[Jackljr]

Another note - I added all costs of the purchase and sale to come up with the $412k - including broker commissions, transfer taxes, credit and appraisal fees ,etc.  I'm not sure if I should be adding these to the cost basis, or subtracting them from the sale price.  I feel like there is not enough help in turbo tax to properly process all of this.