How to Enter Depreciation Recapture in TurboTax

[KrisD15]

I see the answers you have gotten, may I ask a couple more clarifying questions? 

After depreciation and insurance will you have a gain or loss? 

Are you entering this into the program from scratch? In other words, this is not a rental you have been reporting in TurboTax year after year, rather you are entering new in the program for the first time? 

Then you want to claim a casualty loss for the building, then convert the land to personal use?

[cestmoijay]

Hello,

I am not sure which post you're responding to, but I was just piggy backing off someone else's whose scenario was somewhat similar to mine (pls see my post here: https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/how-to-enter-deprecia...)

So assuming you were talking about my post, then yes, there is a gain.  And no, not from scratch as the rental property went into service in 2018.  Yes, reporting as casualty loss in form 4684.  I just don't know how to "recapture the depreciated assets" as I was advised to treat it as a sale of the house portion only.

[Carl]

I am not sure which post you're responding to, but I was just piggy backing off someone else's whose scenario was somewhat similar to mine

That can great more propblems, a "somewhat similar" is not the same. I would suggest you start your own thread with your own facts. Otherwise, as you've already seen it's very easy for you to get wrong and completely incorrect responses to your somwhat similar situation.

[KrisD15]

In TurboTax, first you enter the information (rental income, expenses) concerning the rental BEFORE the demo.

Select that you stopped using it and the date it was destroyed in the rental profile section. 

Return to the rental property and select Edit 

Scroll down to "Sale of Property/Depreciation and select Start or Update

Select "Yes" to go to asset summary

Select that you disposed of the property (sold, retired, destroyed, gave away) and enter the date it was destroyed.

The next screen will ask about prior deprecation. If you have been using TurboTax all along, the program will generate the amount. If this number is incorrect, you will need to edit it. You might need to write down this number for a future step.

On the next screen, be sure to select "YES" for "Special Handling Required" 

Click DONE and move to the Personal "Deductions & Credits" section

Scroll down or find "Casualties and Thefts" under "Other Deductions and Credits"

Enter the description and date the rental was destroyed

PLEASE BE SURE TO SELECT "INCOME-PRODUCING PROERTY"

Continue

Select YES for passive activity

On the Business Property - Information screen, you need to enter the "adjusted for deprecation Cost Basis' 

This means the price you paid for the building PLUS improvements MINUS depreciation claimed (or should have been claimed)  

Do not include the price of the land since you are keeping that. 

If the rental was used for more than 27.5 years, and there were no improvements made, the adjusted basis for depreciation would be zero and you would have a capital gain if you received an insurance payout. 

If you had other assets relating to the rental that were listed separately and depreciated separately, you need to clean those assets off the book as well. If you did get an insurance reimbursement, allocate that amount of the insurance to the remaining value of each asset so they zero out. 

If there was no insurance or other compensation, and there was no residual value to any of those assets, you can:

Claim a casualty loss for each asset OR 

Add the "adjusted basis" of the assets to the "adjusted basis" of the building and report as one event. This means  you will also need to subtract the deprecation taken on each asset to get its "adjusted for deprecation" basis for each asset. 

The resulting gain or loss will be reported on you 1040.

Gain will be Capital Gain on Schedule D

Loss with be ordinary loss on Schedule 1

Any costs you paid to clean-up the site is added to the lot. So if the land was worth 15,000 and you paid 3,000 to clean the building site, the lot would now have a basis of 18,000 which is what you might use when you sell it. 

@cestmoijay

[Hassan6]

I sold my house last year. I took depreciation on it as it was used partially for a home office. Where do I enter the depreciation taken? 

[DianeW777]

In the Sale of Home section of the return.  If you used the home office, and did not use the simplified home office deduction, then you must gather your information from your returns.  Your 2021 return should show your accumulated depreciation used in all years.

Once you have that figure you can continue with the sale of your personal residence. When asked for the cost basis you will reduce that by the amount of depreciation used for your home office. As you go through the sale of home you will be asked for the depreciation.

Let's go step by step:

1. Scroll to Less Common Income > Select Sale of Home (revisit or update) 
2. Continue to indicate you sold your home > Edit or add your home address and ownership > Continue
3. Enter the sales date, Selling Price and Sales Expenses > Continue
4. Enter the date acquired and the cost of the home (includes any capital improvements for the period of ownership 
5. Continue past the 'Less than two years' screen > Yes the home was not used for anything else > Continue
6. Select No another home was sold after _____ date > Select Both of us owned the home > Continue
7. Select Other reasons as the Reason for Sale > Select None of these for Other Reasons for Sale > Continue
8. Select Yes for Depreciation After May 6, 1997 for both of you > Continue to answer the remaining questions.

@Hassan6 

[Edited: 04/14/2022 | 12:32p PST]

[Hassan6]

Dianne,

Thank you so much for your very helpful response, It saved me much aggravation searching for the answer.  You were precise in your instructions. I remain grateful.

The best,

Hassan.