How do I calculate the total depreciation recapture for a Rental Prop I sold?

[frank112]

Hi,

I sold a rental property purchased in 2009 in 2019. 

During this time it has always been rented and I have taken depreciation all these years.

However, I only used Turbo Tax since 2014 so TTax may not have the correct depreciation total taken since 2009.

1. Is there a place in TTax to see this total amount and where it came from?
2. Am I correct to do a sum of all the depreciation amounts noted in Sch E line 18 or line 20 from 2009 to 2018 to find the total depreciation I have taken and use this amount as the depreciation recapture amount in TTax 2019?
   1. If the above is not the proper way to do it, how should I do it?
3. Where do I enter the total depreciation amount to be recaptured in TT 2019?

thanks!

[Carl]

I sold a rental property purchased in 2009 in 2019. ...  I only used Turbo Tax since 2014 so TTax may not have the correct depreciation total taken since 2009.

Don't guess on this. Confirm it one way or the other.

Assuming the first time you used TTX was in 2015 to file your 2014 tax return, pull up the PDF or get the printout for your 2014 tax return. You're looking for two IRS Form 4562's and they will both print in landscape format. One is titled "Amortization & Depreciation Report" and the other is "Alternative Minimum Tax Depreciation". You're more interested in the first one.

At an absolute minimum the rental property itself will be listed on that form. If you did any property improvements between 2009 and 2014, then those will be shown also. For each asset listed if there is an amount in the "Prior Year's Depr" column, then you're good to go. If there is not an amount there, then stop reading now. You have an issue that needs to be addressed *BEFORE* you can correctly report this sale in TurboTax.

Is there a place in TTax to see this total amount and where it came from?

As you work through the assets in the Assets/Deprecation section, there's a screen that shows you the amount of prior year's depreciation that the program is "aware" of. (What it's aware of, depends on how you did things the first year you started using the TTX program.)

Am I correct to do a sum of all the depreciation amounts noted in Sch E line 18 or line 20 from 2009 to 2018 to find the total depreciation I have taken and use this amount as the depreciation recapture amount in TTax 2019?

While it may work for some scenarios, that is not the correct way to "ensure" beyond any doubt that you have the correct depreciation amount to recapture for *that* *specific* *property* that you sold.

If the above is not the proper way to do it, how should I do it?

Actually, *you* don't do it. The program does this for you, assuming that you actually started with the right figures for depreciation when you started using TTX for your 2014 taxes.

Where do I enter the total depreciation amount to be recaptured in TT 2019?

Again, "you" don't. The program does all this math for you. Just follow the guidance below.

Reporting the Sale of Rental Property

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will ahve a selection on it for "I sold or otherwise disposed of this property in  2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets.  You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset.  Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically, when working through an asset you select the option for "I stopped using this asset in 2019" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.

[ColeenD3]

If you have the prior depreciation amount from before you began using TurboTax, you can correct the amount shown. Be careful that you did not add it back already in 2014.

Please see this answer by IreneS in this LINK.

[frank112]

@Carl 

I was able to find all the 4562 for all the years from 2009 for THIS asset (rental house only) and summed these up to get the total depreciation amount to be recaptured for this asset.

I entered this amount manually in TTax since the Prior Year Depreciation amount on the 2013 return (1st year I used TTax) was incorrect vs. what I took in actuality from 2009 to 2012.

The 2013 depreciation TTax calculation was different than what the enrolled agent calculated and reported on the tax returns. Maybe a different "accelerated depreciation" calculation vs. linear one, I guess.

I hope I have done it correctly, let me know.

I probably I would need to do the same as above for the other assets, but they are small amount vs. the rental property and I do not have the "Amortization & Depreciation Report" for them from 2009 to 2012. :(

Thanks!

[Carl]

Basically, (and if I"m understanding your situation correctly)

the Prior Year Depreciation amount on the 2013 return (1st year I used TTax) was incorrect

So for each and every year it was rented up to and including 2018 (not 2019), total up the amounts in the "current year's depreciation" column to get your total "prior year's depreciation taken" on the property. You'll enter that amount into the prior year depreciation box in the turbotax program. Then the program will figure the correct current year (2019) depreciation for you, which is prorated based on the date you closed on the sale.

I probably I would need to do the same as above for the other assets, but they are small amount vs. the rental property and I do not have the "Amortization & Depreciation Report" for them from 2009 to 2012.

What you can do, and "most likely" get away with it, is to delete those rentals from TurboTax 2019 and enter them anew *without* importing data for those rentals from the 2018 return. THen when you enter the "in service" date (which will be a prior year) the program will figure the total of the prior year's depreciation for you. This will not affect the amount of 2019 depreciation you will be taking on the property. But it will get your depreciation history correct in the program.

Now "legally speaking" this should be done via IRS Form 3115-Change in Accounting Method. But I see no sense it it, since it will not change the actual depreciation taken for any tax year now, or in the past. All you're doing is "updating" the amount of prior year's depreciation, to the correct figure.

When it comes to the 3115, this form is *NOT* simple and *REQUIRES* professional help to get it right. You try doing it yourself and mess up, then *that* is what will raise flags at the IRS. Let's avoid that possibility at all costs.