How do you report appliances still in service on sale of rental property

[DanTz]

On form 4797 I understand how to enter the sales price, cost, depreciation and arrive at the adjusted basis.

My question is how do you report and enter the data for appliances that have not fully depreciated.

I have 2 appliances with depreciation taken of $840.81, and deprecation not taken of $143.61.

Is the depreciated amount of $840.81 added to the total deprecation taken or allowed on the rental property sale, and the $143.61 depreciation not taken added to the basis as an expense.

How do you report this on form 4797.

Can you report this on line 25 as section 1250 property showing deprecation allowed as $840.81.

Appreciate your help on this.

[JamesG1]

If the residential rental has been sold and you are currently depreciating one or more appliances within the residential rental, the appliance(s) will be recorded as sold and the selling price allocated across the appliance(s) cost.

The sale of the appliances and any depreciation recapture will be reported on IRS form 4797.  See IRS form 4797 Part III.

As an example, the residential rental and appliance was purchased for $111,000 and the selling price of $222,000 is allocated across the land, the structure and the appliance.

                     Purchase   Sales price

Residence   100,000     200,000

Land             10,000       20,000

Appliance     1,0000       2,000

Total               111,000    222,000

The appliance is reported as sold at the screen Tell us more about this rental asset within the rental property asset screens.

Note:  Sale of land reported on IRS form 4797 Part I, page 1.

[DanTz]

Can you please provide an example of how to report the land portion of the rental property sale on Part 1 of IRS form 4797.

Appreciate the help with this being further explained.

[JamesG1]

Land is section 1231 property and is reported in Part I of the IRS form 4797.

The residential rental is section 1250 property and reported in Part III of the IRS form 4797.

The appliance is personal property used for business purposes and is section 1245 property reported in Part III of the IRS form 4797.

Further explanation may be found at IRS Publication 544 here.

@DanTz 

[DanTz]

Thank you for the earlier information that was provided.

The examples helped to explain the allocation required for land, building and appliances.

I am able to determine the allocation for the sales price and cost for the Land and Building.

However, I am not sure what Sales Price I would put on the 2 appliances.

One is in the 4th year (washing machine) and the other is in the 5th year (built in microwave) of depreciation.

I would not think they would have much of a sale value.

I have 2 appliances with depreciation taken of $840.81, and depreciation not taken of $143.61.

It would be reported as appliance under Property B and appliance under Property C.

Is the $143.61 that was not depreciated added back to the basis of the building or how is this treated?

I was thinking of using zero as the sales price or could use the remaining value of $143.61 that has not been depreciated and would zero out for gain on each. The $143.61 would be removed from the building purchased price and assigned to the appliances as well as the depreciation.

Example on one appliance:

For the cost I only used the actual cost of the appliance.

Gross Sales Price                 $101.57

Appliance Cost                     $767.93

Depreciation Taken              $666.36

Adjusted Basis                      $101.57

Total Gain                     $    0.00

This amount would get reported again on line 31 of Form 4797 as $0.00.

Would this calculation work or what would be your suggestion on how to best report this.

Does this take care of the required recapture depreciation on this item which is reported on line 22 and again on 25a as depreciation allowed. Does this depreciation that was taken on this one appliance need to be reported anywhere else?

Again, appreciate your help with this.

[JamesG1]

I would use the original costs that you posted as the basis for depreciating property B and property C as the basis for the allocation of the selling price over the assets.

So if we go back to the original example and, again, have a selling price of $222,000, we arrive at:

               Original cost  Sales price

Residence   100,000       199,103

Land              10,000          19,910

property B      1,000             1,991

property C         500                996

Total             111,500        222,000

Whether you use this method or your method, make record of how the selling price was allocated in the event that a tax authority has questions about how the computation was derived.

Whether you use one method or the other, the selling price will be the same and all depreciation will be recaptured.

There will be differences in the gain or loss treatment of the 1231, 1245 and 1250 property.

@DanTz 

[DanTz]

Thank you for your reply to this.

I see in the example to allocate the residence, land, appliance B and C to the selling price,

Looks like you take each original cost value and divide it by the total original cost $111,500 and use this percentage against the sales price $222,000.

This will provide the proper allocation of each item for the recording of the sale.

Is this correct?

One more question.

Is the depreciation that was not taken on the appliances which totaled $143.61 added back to the basis of the residence or how is this expense captured?

Again, thank you for your assistance on this.

[DianeW777]

Yes, you are correct on how to allocate selling price and selling expenses to each asset. 

As far as the appliances you should also add a selling price and expenses to them unless they really have no value.  If so, you can enter zero as the selling price and the depreciation expense will automatically flow to the Schedule E up to the date of sale. Any remaining balance would be reported as a sale with zero selling price which would show a loss for any remaining depreciation/cost of the appliances.

@DanTz 

[DanTz]

Thank you for your response.

By selling expenses you are referring to real estate commission and closing costs.

These should also be allocated to residence, land and appliances in the same percentage allocation.

Is this correct?

The $143.61 that was not fully depreciated from the appliances.

Is this added to the basis of the residence or how is this treated?

Since both appliances are in the 4th and 5th year of depreciation could they be recorded as no sales price.

Example:

Appliance is the actual cost of the appliance when purchased.

No reduction will be made on the sales price.

Gross sales price    $0

Cost of appliance   $767.93     

Depreciation taken $666.36.

Adjusted basis        $101.57

Total gain                 ($101.57)   reported as a loss.

This would account for the depreciation not taken on the appliance.

The lost would be reported on line 31.

Appreciate your help with this.

[DanTz]

By selling expenses you are referring to real estate commission and closing costs.

These should also be allocated to residence, land and appliances in the same percentage allocation.

Is this correct?

The $143.61 that was not fully depreciated from the appliances.

Is this added to the basis of the residence or how is this treated?

Since both appliances are in the 4th and 5th year of depreciation could they be recorded as no sales price.

Example:

Appliance is the actual cost of the appliance when purchased.

No reduction will be made on the sales price.

Gross sales price    $0

Cost of appliance   $767.93     

Depreciation taken $666.36.

Adjusted basis        $101.57

Total gain                 ($101.57)   reported as a loss.

This would account for the depreciation not taken on the appliance.

The lost would be reported on line 31.

Appreciate your help with this.

[DanTz]

On form 4797, Part III do you enter the in-service date that you started using the property as a rental or the date that you first acquired the property?

Example, the property was purchased in 2003 , but not placed into rental until 2007.

Would the in-service date of for 2007 be used?

Appreciate your response to this.

[DanTz]

The form for line 1b says to enter the total amount from lines 2, 10 and 24 due to partial dispositions of MACRS assets.

On line 2 I show a gain for the land for a rental property with no depreciation taken on the land.

I have zero for line 10 and on line 4 I have a gain after adjusting for deprecation taken for a rental.

If for example I have 20,000 for land gain and $80,000 for rental property gain what is supposed to be entered on 1b.

Is the amount be entered only the $80,000 for the rental property that had depreciation taken.

Appreciate a response to this message.

[DanTz]

Community, still looking for assistance on this subject.

The last reply was from DianeW777 on this thread.

By selling expenses you are referring to real estate commission and closing costs.

These should also be allocated to residence, land and appliances in the same percentage allocation.

Is this correct?

The $143.61 that was not fully depreciated from the appliances.

Is this added to the basis of the rental property or how is this treated?

Since both appliances are in the 4th and 5th year of depreciation could they be recorded as seen in the example below.

Example:

Appliance is the actual cost of the appliance when purchased.

The gross sales price is the remaining amount of the appliance that has not been depreciated.

Gross sales price    $101.57

Cost of appliance   $767.93     

Depreciation taken $666.36.

Adjusted basis        $101.57

Total gain would be zero.  

Appreciate your help with this.

[DianeW777]

Yes, the allocation should involve all assets unless, appliances as example, do not have any real value which would be determined by the age of the appliance.

Your example is accurate and the process is explained below as well.

The amount of any depreciation remaining on any depreciable asset that is part of the sale would essentially be considered as basis when you enter the sales information.  TurboTax will easily handle this part for you and carry over to Form 4797 the correct gain.  You should see the total cost, less depreciation, and then the selling price/selling expenses will be used against the remaining cost basis to arrive at the actual gain or loss.

@DanTz