How do allocate rental property sales monies across different assets?

[dsaxena_pdx]

So I purchased a rental property a few years ago and have made various improvements to it over the years, with over $200K invested across these on top of the original property itself. I sold this property last year and from my understanding of how TurboTax handles assets on a real estate property, I need to individually mark each asset as no longer in use and sold. What I can't quite figure out is how do I allocate the sales proceeds across these assets? Should I figure out what percentage of my investment was the original purchase and what was improvements and split the sales that way too? I don't understand why TT can't just automatically do this. 😕

[PatriciaV]

You may allocate the sale proceeds and selling expenses using any reasonable method. Most taxpayers use the adjusted basis at the time of the sale. Calculate the percentage of basis that belongs to each asset, then apply that percentage to the sale.

Example for allocating to property and land:

1. Total Basis: $80,000 for home & improvements (net of depreciation); $20,000 for land ($100,000 total)
2. Percentage of Land Basis: $20,000/$100,000 = 20%
3. Total Sales Proceeds (gross sales price) = $150,000
4. Sales Proceeds for Land = 20% x $150,000 = $30,000
5. Sales Proceeds for Asset = $150,000 - $30,000 = $120,000
6. Total Selling Expenses = $10,000
7. Selling Expenses for Land = 20% x $10,000 = $2,000
8. Selling Expenses for Asset = $10,000 - $2,000 = $8,000

You can calculate the adjusted basis from the Depreciation Report included with your prior year return. Be sure to add current and previous depreciation together before you subtract that total from the original cost basis.

Because the allocation method is the taxpayer's choice, TurboTax lets you decide how to report the sale.

[dsaxena_pdx]

Thanks for the info. So following your example, my costs were $25K land, $50K property, $20k new foundation, $5k new windows, I would split my sales 25%, 50%, and 20%, and 5%?

[PatriciaV]

Yes, if those were the final adjusted cost basis numbers for the assets, your percentages would be correct. Remember that all but the land should have accumulated depreciation that reduces the cost basis used in these calculations.