How to include new HVAC as part of cost base when selling rental property?

[bl121]

Hi,

  In 2020, I have HVAC contractor installed a grand new HVAC system in my rental property. I sold this rental property in 2021.

  Here is my understanding:

  My rental property cost base = original purchase price – depreciation over years + cost of grand new HVAC system – one year depreciation of grand new HAVC system.

   Here is my question:

Within Turbo tax,  what I need to do to tell Turbo Tax to include cost of grand new HVAC system as part of cost base?

Thanks,

Bob

[KrisD15]

The HAVC should have been listed as a new asset in 2020. 

Do you know if you took a Section 179 deduction or bonus depreciation for the HVCA in 2020? 

If you did, that is added as prior year depreciation. 

For the year the rental is sold, the depreciation for 2021 before the sale needs to first be calculated. 

Next, the sale proceeds need to be allocated between the building, land, and HVAC (as well as any other assets added to the rental).

If you have been using TurboTax all along, those numbers would be in your TurboTax program already. 

If this is the first year using TurboTax, you will need to enter that information, including the original cost and prior depreciation. List the HVAC under Sale of Property/ Depreciation in the Rental section.

You'll need the cost for that and the prior year depreciation.

Prior year depreciation could include Section 179 Deduction or bonus depreciation if you took that in 2020.

If you have to list the property also, the original cost will need to split between building and land.

Residential buildings can only be depreciated straight-line over 27.5 years. 

Land is not depreciated. 

Now enter the sale:

Rental Properties and Royalties

Select YES to review

Continue to Rental and Royalty Summary and click EDIT next to the location 

Enter any income and expenses you had for 2021

Scroll down to Sale of Property/ Depreciation 

Select YES to go asset summary

Here is where the building is listed and where the HVAC should be listed.

Click EDIT to report the sale. 

When you sell a business asset, like a rental, the depreciation is first "Recaptured" as ordinary income. Any profit left that is attributed to an increase in value is a Capital Gain.

[bl121]

Thanks for quick response!

I have used Turbo Tax Premier  many years.

I don't think I took a Section 179 deduction or bonus depreciation for the HVCA in 2020.  What I need to do to include new HVAC cost if I don't took a Section 179 deduction or bonus depreciation?

On form 4562 line 8 to line 13 are blank on my 2020 return.

Here is what on form 4562 Part III MACRS Depreciation section 8 on year 2020 return regarding new HVAC:

H residential rental property  

Recovery period is 27.5 yrs

Convention is MM

Method is S/L

Depreciation Deduction is $68

Thanks,

Bob

[ColeenD3]

Accelerated depreciation is not available for HVAC unless it is nonresidential.

The law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, makes HVAC costs eligible for expensing under Sec. 179. To be eligible, the HVAC costs must be for nonresidential real property that is placed in service after the date the property was first placed in service.

Did you enter it as an asset in 2020 to be depreciated? It should carry over.

[bl121]

Thank you for quick reply. Here is more detail info:

1. As I mentioned, HVAC was installed in 2020 in my rental property.

2. I did enter it as an asset in my 2020 tax return using Turbo Tax premier. Here is on 2020 return form 4562 part III MARCS depreciation section B:

It was entered as 'H residential rental property'  and  recovery period is 27.5 years. I spent $5000 on HVAC, conversion is MM, method is S/L,  depreciation  on deduction was $68.  So in theory, I can have another 26.5 years to depreciate HVAC.

3. My 2021 tax return is almost done.

 I noticed on line 21 (Cost base + expense) on form 4797: 

It doesn't include new HVAC 

It is not reflected in line 20, 22 and 23. 

Here is my question/request:

  I need step by step instruction to tell Turbo Tax to include remaining 26.5 years HVAC as part of cost base

Thank you!

[ColeenD3]

You need to go through the asset section for the HVAC as well as the building to have it show on forms.