How do I find depreciation amount for rental property

[ukrkoz]

Hi all

We are in process of selling one of our rental properties.

Property was purchased as residency in 2005, placed in service in February 2016 and will be closed late August 2020.

Property was entered into TT as such, with according depreciation calculated by TT.

Original property cost was $440K plus fees plus multiple improvements all the way into few weeks ago, what raised property base to around $500K.

Sale price is $740, out of what we lose $55K in commissions and fees.

Property is carrying $300K equity loan, what will be paid off from proceeds.

I am trying to estimate next year tax liability, based on this sale. From what I figure, our capital gain will be $685K after fees less $500K base = $185K gain but, TT asks for depreciation to be entered into formula.

That is what I do not know exactly, how to find. We do not wish to do 1031, no more mortgages.

Thank you

[Critter-3]

First  the mortgage balance is immaterial to reporting  the sale.

Now you didn't indicate if you were using the ONLINE or DOWNLOADED version of the TT program  and hopefully you reported the assets correctly as you went along ... if so the sale will go smoothly if you go slow and read the screens carefully.  

https://ttlc.intuit.com/questions/1933977-i-sold-my-rental-property-how-do-i-report-that?jump_to=ans...

This is my mini version of  a tutorial  that should be in the downloaded program: 

What is Forms Mode?

Forms Mode lets you view and make changes to your tax forms "behind the scenes."

If you're adventurous, you can even prepare your return in Forms Mode, but we don't recommend it. You may miss obscure credits and deductions you qualify for, and you may forget to report things that will come back and haunt you later.

Forms Mode is exclusively available in the TurboTax CD/Download software. It is not available in TurboTax Online.

Related Information:

• Why would I use Forms Mode?
• How do I switch to Forms Mode in the TurboTax for Windows software?
• How do I switch to Forms Mode in the TurboTax for Mac software?

You CANNOT massage the .tax file in any way when using the TTax On-Line version. ANY changes (what-ifs) that you make will PERMANENTLY change your archived return.

If you want to play around with different figures and tax scenarios without affecting your original return you can ….

• >>>In the TurboTax CD/Download software by creating a test copy: 
• 1.  Open your return in TurboTax. 
• 2.  From the File menu, choose Save As. 
• 3.  Give the copy a new name to distinguish it from the original (for example, by adding "Test" or "Example" to the file name). 
• 4. Click  Save. You are now safely working in the test copy and anything you do here will not affect the original. 
•  https://ttlc.intuit.com/questions/1900642-how-to-make-a-test-copy-of-your-return

• >>  use the WHAT IF tool: 
• - Click Forms Icon (upper right of screen) or Ctrl 2 (forms view) 
• - Click on the Open Form Icon 
• - In the “Type a form name.” area type What-If (with the dash), click on the name of the worksheet - click on Open Form 
• - You will see the worksheet on the right side of the screen; enter the information right into the form 
• - To get back to interview mode - click on the Step-by-Step Icon (upper right of screen) or Ctrl 1

It's always a good idea to make a backup copy of your tax data file, in case your original gets lost or corrupted. Here's how:

1. From the File menu in the upper-left corner of TurboTax, choose Save As (Windows) or Save (Mac).
2. Browse to where you want to save your backup.
   • Tip: If you're saving to a portable device, save it to your computer first to prevent data corruption. Then, after completing Step 4, copy or move the backup file to your device.
3. In the File name field, enter a name that will distinguish it from the original tax file (for example, add "Backup" or "Copy" to the file name)
4. Click Save and then close TurboTax.
5. Restart TurboTax and open the backup copy to make sure it's not corrupted. If you get an error, delete the backup and repeat these steps.

If you make changes to your original tax return file, repeat these steps to ensure your original and backup copies are in-synch.

Related Information:                             

• Retrieve a Tax File from a Portable Device
• What's the difference between the tax data file and the PDF file?

AND save it as a PDF so you have access to a copy even if you don’t have the program still installed and operational :

• How do I save my return as a PDF in the TurboTax software for Windows?
• How do I save my return as a PDF in the TurboTax software for Mac?

AND protect the files :

• How can I protect the tax files on my computer?

[ukrkoz]

Downloaded version.

Yes, I know mortgage is irrelevant, was simply giving as much info as I could think of.

[ukrkoz]

OK, I read it carefully.

As property was reported in tax software for several years, for the time being a rental, and as such, is it safe to presume that, TT will "figure it all out", depreciation amount included?

Also, this is done NEXT year, for 2020 taxes, right? I have learned so much unpleasant surprises with this sale that am scared of my shadow now. Not a day without unpleasant discovery of more taxes, fees and what not.

[Carl]

First, if you have already filed your 2019 tax return (and I can't stress this enough) *DO* *NOT* change anything as you follow the below.

In the assets/depreciation section work through each individual asset one at a time. For each asset you will have a screen that will show you the total of prior year's depreciation already taken. Then of the last screen for each asset it will show you toe 2019 depreciation.

Do this for each individual asset listed. Then add up the depreciation amounts to get the total depreciation taken up to Dec 31 2019. Now reduce your cost basis by the total depreciation taken. Subtract that adjusted cost basis from your sale price and that will give you a "ROUGH" estimate of your taxable gain on the sale. Depending on what you AGI will be, figure a minimum of 25% federal taxes on that. If your state also taxes personal income, figure another 8% for state taxes.

[ukrkoz]

Thank you.

If I am selling one property, why am I adding all depreciation for 2019 for all assets?

Then add up the depreciation amounts to get the total depreciation taken up to Dec 31 2019.

Shouldn't I only subtract depreciation for property sold?

We should be in 15% CG tax per income.

[Anonymous]

you are correct. your capital gain will be $185K. In addition, you'll have section 1250 recapture on all the depreciation you took or should have taken, whichever is larger. if you go into schedule E for the rental property there's a link to the asset entry worksheets. in each asset entry worksheet, there is another link to the asset life history. that will only show the depreciation through 12/31/2019.  as a rough estimator for 2020 depreciation use .00303 per month so if the asset cost is 30,000 put into service prior to 2020 and property sold in September depreciation for 2020 would about be  30000 * 8.5 (you only get 1/2 month depr in month of sale) * .00303 = $773

if place in-service in February 2020 30000 * 7 (1/2 month depr in month acquired and 1/2 month in month sold) =2121.   these assume a 27.5 year life.  if the asset is tangible personal property like tables  then no depreciation is allowed if acquired and sold in the same year. if acquired prior to 2020 1/2 year depreciation allowed for Personal property in the year sold. 

[ukrkoz]

Thank you

Thus, for property placed in service on 02/2016 and sold on 08/2020, it will be roughly 4.5 yrs of service, or 4.5x12=54 months.

54 x 0.00303x500000=$81, 810? And, if this is correct, recapture will be roughly 25% of that, or $20, 452? Plus, 15% CG tax?

[Carl]

That is not the correct way depreciation is figured by the IRS rules. If you just do as I stated above and print out the 4562's for that property, you'll see the depreciation taken.

IRS Publication 946 instructs how to depreciate property. For rental property use the worksheet on page 38 and table A-6 on page 72.

If you are "NOT" grouping rental property together, then you sold *EVERY* *SINGLE* *ASSET* listed in the assets/depreciation section for that specific property. you have to recapture the depreciation on every single asset sold.

Now if you have an asset that was not sold (such as a window A/C unit you were depreciating) then you still have to report the disposition of that specific asset in order for the entire property to be considered as disposed of, by the IRS. Maybe it was trashed so you took it out of the window and threw it away? Maybe you removed it for personal use in your primary residence? Whatever you did, you "must" show the disposition of all assets associated with the property that was sold.

[ukrkoz]

Let me try to make it very simple.

When I do my 2020 tax next year and enter rental property sale, TT should simply retrieve all the info and do it, right?

[Critter-3 · Accepted solution]

Simply put yes ... if you have been depreciating the property correctly and you indicate it was sold and faithfully read and follow all the screens in the Rental section then the program will complete the sale for you...

https://ttlc.intuit.com/questions/1933977-i-sold-my-rental-property-how-do-i-report-that?jump_to=ans...

[ukrkoz]

Good. I am easily lost in otherwise obvious directions (for some) how to this or that. Fortunately, wife caved in and is going to hire a CPA for this sale, as she does not like the sound of $50K tax but, I do not think, she'll accomplish much with this.

Yes, I diligently followed all prompts through those 4.5 yrs I reported that rental. Should not be a problem then. I am only trying to have ROUGH guesstimate on how much to set aside for that tax, as I want to pay off 2 rental mortgages from current proceeds and go debt free again. Tumultuous times... but i need to be prepared for the next year tax.

[Critter-3]

Using a paid preparer in a year with items you are not sure of is a good thing for the piece of mind you will get ... you can either use the ONLINE Premier version and upgrade to the LIVE CPA option or  seek local professional guidance.