Once you indicate the rental was sold in the rental info section you must sell off all the assets listed that have been depreciated. If you have not been depreciating the property then RUN to a local tax pro or upgrade to the LIVE option since the form 3115 you will need is not a DIY form.
Thank you. So are you saying that I have to go through my assets in the depreciation list one by one, click edit, and mark them as no longer in service as of the date of my property sale?
It would be best to report the sale of each individual asset, as @Critter-3 suggests. If you do it that way, you will have to prorate the sales proceeds to each asset. For example, you would have to allocate a portion of the sales proceeds to the house and another portion to the other assets, so that when you are done you will have reported all of the sale proceeds.
Also, there is an option in TurboTax to make one entry for the sale of the property. If you choose that option, you would have to calculate the total cost of the assets you depreciated and the accumulated depreciation allowed on them up to the time of sale. You will see that option when you are on the Let's gather your business info page where you will see Sale of Business Property. This option may work OK if you didn't have any special depreciation, like section 179 expensing, and if you aren't dealing with alternative minimum taxes.
Here's the guidance on that. Pay attention to detail. (very close attention to detail.)
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 have a selection on it for "I sold or otherwise disposed of this property in 2021". Select it. After you select the "I sold or otherwise disposed of this property in 2021" 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 if it's zero. Then you MUST work through the "Sale of Property/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 on some assets. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1 on some assets.
Basically, when working through an asset you select the option for "I stopped using this asset in 2021" 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.
Omygosh, this sounds so tedious, detailed, and complicated! But thank you so much for taking the time to write out such a detailed response.
I'm unclear still, however, about the allocating the non-land proceeds part. I have a list of like 15 items I've been depreciating all along. And I sold at a gain. Would I, like, pick a price something higher than what my depreciation table says it's work and then keep track of all these 15 asset selling prices and deduct that from the total selling price I put on the property itself? (Oy)
It needs to be done correctly so this may be a time where you have someone else complete the return for you ... seek local assistance or upgrade to the LIVE version.
Otherwise get out a calculator and do some prorations like you did back in grade school. Or set up an excel spreadsheet if you are techie.
If you sold at a gain, then you must show a gain on each individual asset. Doesn't matter if that gain is a million dollars on some assets, and only one dollar on other assets.Period.
If you show a gain on some assets and a loss on other assets, then the depreciation recapture will "NOT" be correct and your form 4562 will be wrong.
I'm confused about the sale price I allocate to each depreciated line item. Is it something greater than the number in the "Depreciation" column?
What about when there is also a number in the "Special Depreciation" column?
Ok ... a simple example of ratios ... if you have more assets than the example then you will have more lines. Remember if you divide a big number into a littler number you get a % ... thus 5000/10000 = 5%
original cost basis ratios Sales price cost of sale
home 80000 80% 160,000 8,000
land 15000 15% 30,000 1,500
roof 5000 5% 10,000 500
totals 100,000 100% 200,000 10,000
All you need to enter into the program is the % of sales price & % of cost of sale for each asset ... IGNORE the depreciation taken as it is immaterial for the sales of the assets.
Ah, thank you! That feels helpful (gotta get in there and confront the software to confirm that feeling…)
But just to restate what I THINK I’m understanding you to say (the numbers in your example are jumbled on my end, so hard for me to use that for clarity):
I take the cost basis of the itemized asset and figure out it’s percentage of the cost basis of the whole property, and then use that percentage of the 2021 sales price to determine price of that asset?
Correct ... easiest way to do this is to PRINT out a copy of the depreciation worksheet ... all the assets will be listed there and you can simply add up the cost basis column. In the program, in each asset, you will enter the date sold, sales price and cost of sale for each asset. Once you do the math and set up a chart then the rest is easy.
I take the cost basis of the itemized asset and figure out it’s percentage of the cost basis of the whole property, and then use that percentage of the 2021 sales price to determine price of that asset?
You can certainly do it that way. Just be absolutely certain that the sales price of each individual asset is at least $1 more than the original cost basis, and you'll be fine.