How do I report sale of a rental property and recapture all the depreciation from previous returns filed with TurboTax? What is the workflow?

[scpanish]

I put that stuff in as imrovements, selling price $1, used the date the house was sold, and reduced the sale price of the building by those little additional amounts.  But - I don't know if that is strictly correct.  It goes through with no errors.  I would also try it as repairs and see which works out better.  I suspect it will come out the same overall.

[Carl]

@scpanish you are posting as an "add-on" to someone else's thread. Continue to do so and chances are "HIGH" it will lead to confusion that will result in you being given the *wrong* information.
Bottom line is, your water heater and hardwood floors are entered the assets section. Period.
But for property improvements done between the time the last renter moved out and the time you sold it, just make the business use percentage ZERO, and no depreciation is taken on that asset.
"I put that stuff in as imrovements, selling price $1, used the date the house was sold, and reduced the sale price of the building by those little additional amounts. "
Nope. Flat out wrong. There's no way on earth you paid $1 for a water heater and new floors. That has an extremely high possibility of raising flags and getting you audited.

[sorinatlanta]

so I purchase the house in 1999 for 134000 I leave in for 3 years I place for rent in 2002 as 135K and 30 land. Before sold I added a huge porch over a sloped land cost me 8K and hardwood floor 5K  spend more then 5 k on water heather, clean, paint, etc. sold in 2018 for 178K  my closing cost was 10 K so what I need to put asset sale price for my main building and land? Thank you Sorin

[scpanish]

You will enter separate prices for the house, which depreciates, and the land, which does not.  You will also have a selling price for each of the assets associated with the house, which includes your improvements (if you have not included them as repairs, which would come off your remtal income).  The total of all those prices should add up to the total sales price.  The costs associated with the sale are deductible (some are anyway) and when you go through the Interview Steps you will be asked for those costs.  They will be listed on the papers you received at the closing from the closing agent (realtor or title agent).  The value of the lot is on the tax card and you can request that from your town's tax assessor clerk.  Likely you entered the basis for the property in Turbo Tax when you aquired  the property, that would have a separate basis value for the house and the land.  Hope this helps.  It's a PIA for sure.

[scpanish]

Carl knows way more than I do.  In my case, the  $1 price was because the items were completely depreciated, important point I left out.   This is not true in Sorin's case, so he would need a real value.

[sorinatlanta]

very complicate why you add those to depreciate page it should be easier a question how much you spend after the tenants left and you prepare for sale

[Carl]

"the  $1 price was because the items were completely depreciated"
See what I mean. Now the confusion begins. It was stated the hot water heater and floors were installed after the last renter moved out, and prior to the sale. At least, that's how I understand it. So there's absolutely no way those items were depreciated by a single penny since there were "never" used to produce income.

[sorinatlanta]

Carl can you please help me?
so I purchase the house in 1999 for 134000 I leave in for 3 years I place for rent in 2002 as 135K and 30 land. Before sold I added a huge porch over a sloped land cost me 8K and hardwood floor 5K  spend more then 5 k on water heather, clean, paint, etc. sold in 2018 for 178K  my closing cost was 10 K so what I need to put asset sale price for my main building and land? how to put those numbers in the tax return. Thank you Sorin

[Carl]

@sorinatlanta please start your own thread on this with a new post.I'm no longer going to participate in this thread because with three add-on users already, the possibility of confusion is high and there's a risk that I will provide you information that is just flat out wrong. So please start a new thread with a new post. I'll be happy to help.

[Steve77]

When I try to put business usage at zero, it says "the value entered must be equal to or greater than 1.00" (meaning 1%).

[Hanky]

I have similar situation and hoping Carl can help me. I bought a new washer for  my vacation rental on January 4,2019. The washer was used 100 percent immediately by the renter. When the renter left in May, we decided to sell the unit and we closed on June 11, 2019. Can I expense the washer under section 179? How do I record disposition on the washer? Thanks in advance.

[DavidS127]

If the washer cost less than $2,500, you can elect to expense it.  TurboTax gives you that option when you enter your rental information.  That way, the washer doesn't enter into the disposition of the rental unit.

[Carl]

I've always been of the opinion (and we all know what opinions are like) that when it comes to rental property, things that cost less than $2,500 that do not become "a physical part of" the property should be expensed. Now there are some things that you would "think" would fall into that category. But they do not.

For example, a new hot water heater. Typically you can't expense that. A hot water heater becomes a physical part of the plumbing system, which is already a physical part of the rental property itself. A hot water heater is not something that one would typically remove from a property prior to selling it. So regardless of the cost, a new hot water heater gets classified as residential rental real estate and depreciated over 27.5 years.

The same holds true if you have central air in the house and the outside compressor, inside fan blower, or both get replaced.Besides, it would be rare to place either of those units alone for less than $2,500 anyway. But if you did, it's still a rental asset that gets depreciated over 27.5 years.

Now a window A/C unit would be different. WHile it's possible to purhcase a Window A/C & heating unit for more than $2,500, I seriously doubt any landlord would spend that kind of money for a window unit on rental property. So a window unit under $2,500 can be expensed. It's perfectly reasonable to remove such a unit from the house prior to selling it. All you have to do after removing it, is close the window it was in.

There are also some portable dishwasher styles out there. I know back in "the day" we had one that you rolled up to the kitchen sink, pushed the rubber feed hose onto the water faucet, put the drain hose in the sink, turned on the hot water and then pressed start. Something like that could be expensed. But a built-in under-the-counter dishwasher is without question, a physical part of the property.

One thing with kitchen appliances though, is that in the IRS Pub those fall in a "grey area". I've seen them classified as appliances or *equipment" and depreciated over 5 years. In my view, that's not really wrong because it is "equipment" and it is used to generate income from the renter that uses it.

But classifying appliances as residential rental property and depreciating over 27.5 years is not wrong either. The IRS pubs really don't clarify kitchen appliances all that well. IN one section you're "allowed" to classify them as such and depreciate over 5 years. In another section you can classify as rental property and depreciate over 27.5 years. So I guess it just depends on what you happen to read first.

[JohnP710]

Rental structure ($31K) purchased in 1974 is fully depreciated. Only replacement Gutters/Shingles depreciation remains. Sale price: $393,000.  Except for first two years of personal use (military) the property used 100% for business.  Last tenant moved out on 31 May 2021.  Sold Rental on 22 Oct 2021. 

Expenses accrued between 31 May and 22 Oct include: Painting; Electrical; Plastering; Contract oversight; demolition; floor tiling; hardwood floor refinishing; plumbing; purchase and installation of new cabinetry and vanities; replacing attic insulation; new appliances; miscellaneous work, materials, and associated meals; and utilities, taxes, and mileage.  Total approx. $75K + $29K (Selling expenses)

I thought this was going to be easy!

[MarilynG1]

It depends.  If you were planning to sell the property after the last renter moved out, these expenses could mostly be added to Cost of Sale, as you suggest.

Any major improvements (that add to the value of the property) could be added to the Cost Basis when reporting the sale (which you indicated is currently $0). 

Report the sale in the Rental section under 'Property Profile' and 'Assets/Depreciation'. You can report the sale of the 'Gutters/Shingles' asset for the amount of the unused depreciation (no loss/gain).  

Don't worry about precisely categorizing between Cost Basis and Sales Expenses as both are subtracted from Sales Price to determine your Gain on the sale (which is basically depreciation recapture).  It won't be too hard!

Click this link for steps on How to Report Sale of Rental Property.

@JohnP710