I sold my rental property. How/where can I get allocation info for sales and expenses between asset and land?

[ngneer]

I sold my rental property. How/where can I get allocation info for sales and expenses between asset and land that TurboTax is asking for?  I checked my settlement statement of the sale and it doesn't allocate between the land and the asset itself. Do I need to go back to the realtor or the title company to get that information, do you think they would have it? Or check with the county deed or tax office?

[DS30 · Accepted solution]

If you have a copy of an appraisal, and it breaks out the house and land values, you can also use it to establish the allocation of value between the house and land on use that percentage to allocate sales proceeds and selling expenses.

Additionally - you can get a copy of your last property tax assessment (either online or from the county tax assessment office) or look at your last property tax bill and allocate the sales proceeds and selling expenses based on the percentage of the assessed house value on the property tax bill over the total assessed value and multiply that percentage to the sales proceeds and selling expenses to get the allocation for the house. The remainder will be the amount of sales proceeds and selling expenses allocated to the land.

[ngneer]

Thank you for your response. I checked with the title company who I closed the sale of the property with and their response was  they don't include the allocation of value unless you purchased a vacant land and did a loan to build a house on, then referred me to my accountant and the 1099-S that they said they will provide.  

I did read similar questions on AnswerXchange and saw that I can check with the property tax assessment office or website to see how they allocated the percentage between the land and the house just likeyou suggested, but I'm confused when they called the house "improvements" or use the term "house or asset" and "improvements" interchangeably.   Are we to allocate between land and the cost of house improvements only or the cost of the house itself?  

Also, I made repairs prior to getting the house sold while it was still a rental, to help it sell, are those repairs considered improvements or cost to sell the house, or just repairs of the rental?  As those are two different areas within TurboTax.

[DS30]

For the allocation - So if sales proceeds are $100,000 with $20,000 allocated to land and $80,000 allocated to the building structures, you will further allocate this total for the rental structures to each structure (rental house plus capital improvements) based on each assets original cost over the total of all original costs for these assets.
If the original cost basis of the rental house was $40,000, the a/c unit was $5,000 and the roof was $10,000. Then the allocation of the $80,000 of sales proceeds would be: rental house - $58,182 (40,000/55,000 * 80,000), a/c unit - $7,273 (5,000/55,000 * 80,000) and roof - $14,545 (10,000/55,000 * 80,000).

If repairs made while still available for renting, then rental expenses. If the repairs were done while not available for rent but to help sell, the IRS considers these nondeductible personal expense unless they are capital improvements (which are added to the basis in the rental property).

[ngneer]

Thank you for clarifying all this, you've been most helpful. I have one more question. It looks like I have to turn to the property tax appraiser's office for the allocations. Their website gives land and building values in separate columns based on market value, which is the information I need, so when I do the allocation I get 12% and 88% for the land and house respectively, dividing each by the total market value. But then they have a column next to the total market value that gives the assessed value, which slightly less than the market value, so when I do this calculation based on the (total) assessed value, it's 12% and 81%, as the assessed value is about 5% less than the market value, which doesn't make sense as the percentages don't add up to 100%. Do I base the allocation percentage calculation on the market value, or the assessed value, considering the property tax appraiser's website doesn't give assessed values of land and house separately, but they give the market values separately?

[DS30]

You can do it based on the allocated percentage of market value (12/88) the total assessed value (81) may have an exemption being included in the calculation that lowers the % from 88 to 81.

[jenkt]

Which Property Tax statement would we use to calculate this? The statement for the range included with the sale or the most CURRENT statement which would have been released after the sale of the property?

[tatou1]

Hi there I would like some help with this subject  as well. I need to allocate 190,000 proceeds from the sale of my rental between structure, land, and expenses. My 2020 notice of value from the County assessor indicates a market value of 165,620.00 of which 26,522. is allocated to the land and 85,467 to the structure. Would you please help me figure out what to enter in the allocation section? When I started renting the place and entered the purchase price on Turbo tax, it allocated the 55,000 as follow 35,000 for structure and 20,000 Land. It was 20years ago and I am not sure how the program came up with that figure. Now should I use the percentage used by turbo tax for the depreciation or the city assessment for 2020 which was the last year the condo was rented. The last tenants left in July and the house sale was closed in January 2021. I would appreciate it if you would help me decide the best method of entering this and help me with the calculation.  Thanks in advance.

[tatou1]

People like to protest their property value to get a lower tax rate so they'll  pay less property tax. I would go with the Market value.

[tatou1]

I read somewhere that if using tax assessment you should use the property value assessment for the year the property was sold or the year you paid your last property tax for the rental.

[lbeachmike]

I've noticed that for sales price, regardless of the allocation between house and land, there appears to be no tax impact (for me)

I've also noticed that for sales expense, regardless of the allocation between house and land, there appears to be not ax impact (for me)

What is expected to be the effect of allocating these (versus allocating everything to land, or 50/50, etc) ?

[Carl]

I don't know why everyone makes this seem so complex when it's extremely simple.

Look at your allocation values in your cost basis. Allocate the same exact percentages between land and structure for the sale.

[lbeachmike]

Carl - How to do this is not complicated.  It was already done prior to my question.  My question asked about why, not how.

Understanding how and understanding why are two totally different things.

Are you able to answer my question?

[Carl]

The structure is SEC 1250 property that is depreciated. Gain is based on the adjusted cost basis and is taxed at the capital gains tax rate, and recaptured depreciation is taxed at the ordinary income tax rate.

Land held for more than a year is SEC 1231 property (I think) and all gain is taxed at the capital gains tax rate.

[lbeachmike]

Thanks for the explanation.  That is actually very helpful info that I was unaware of.  Based on your explanation, I would expect to see a difference in my total tax by using different allocations - however, regardless of how I allocate, I get precisely the same result.

I am using Home and Business PC Desktop version.