I sold a rental home in 2020 (I never lived in). When entering the sales information, How do I figure out how to allocate the sales price between the Asset and the Land?

[cirenoskcire]

additionally, what do I list under "Asset sales expenses" and "Land sales expenses"? does the realtors fee go one of those places? Anything else?

[ThomasM125]

You should allocate the sales proceeds to land versus building based on the percentage of the value of the land to the value of the building. Often, you can look on your property tax assessment notice to determine the value of the land. You can often look this up online at your local property appraiser's office.

For instance, if the land was worth $50,000 and the house sold for $100,000, you would assign $50,000 of the sale to the land.

The realtor fee would be a selling cost and would be allocated using the percentage you calculated in the previous step.

[Critter-3]

If you look at the land/house ratio you used to set up the asset for depreciation  you can use the same ratio for the sales price & cost of sale.  

If you have not been depreciating the home  then RUN to a local tax pro to get this major error corrected.  The form 3115 is not a DIY project. 

[Carl]

First, understand that the program has limits. If you have more than one asset listed in the "Sale of Property/Depreciation" section, then you need to split your sales price across all assets. How you split them doesn't really matter "TO A POINT".

Basically, if you sold the property at a gain, then you need to show a gain on all assets.Doesn't matter if that gain is $1 on some assets, and $200,000 on another asset. The important thing here, is that the program correctly recaptures the depreciation on "ALL" assets. So when sold at a gain, your sales price on all assets needs to be "at least" $1 over the cost basis (what you paid) for that asset.

When you add up the sales price of all assets,that total should equal your total contracted sales price for the property.

Now keep in mind that land is not a depreciated asset. Therefore, you do not allocate any portion of your land sales price to any other asset that is depreciated.  Here's a "VERY ROUGH" example of a rental property that had two property improvements done, prior to the sale.

COST: $100,000

COST OF LAND: 25,000

With the above the program (not you) does the math and figures that the value of the structure is $75,000. It's that $75,000 that gets depreciated over 27.5 years.

NEW CENTRAL A/C: $10,000 - Since this is "a material part of" the structure, it's classified as Residential Rental Real Estate and gets depreciated over 27.5 years. It also adds to the cost basis of the property, meaning you now have $110,000 as your total acquisition cost at this point.

NEW ROOF: $20,000: Since a new room is "a material part of" the structure, it's classified as Residential Rental Real Estate and gets depreciated over 27.5 years. This too adds to the cost basis of the property, meaning you now have $130,000 as your total acquisition costs a this point.

You sell the property for $300,000 with a total of $5,000 in sales expenses. Obviously, at this price it's sold at a gain of roughly $165,000. (We still have to account for your sales expenses.) When reporting the sale of each asset in the Sale of Property/Depreciation section, you can allocate the sales price across these assets as follows:

LAND SALES PRICE: $30,000
LAND SALES EXPENSES: 2,000

After the program subtracts my sales expenses from the sales price, I show a gain of $3,000 on the sale of the land. Since land is not a depreciated asset, there is no depreciation to recapture here.

STRUCTURE SALES PRICE: $100,000

STRUCTURE SALES EXPENSES: $5,000

After the program subtracts my sales expenses from the sales price, I show a gain of $20,000 on the sale of the structure. All prior depreciation taken is recaptured and added to that gain. The depreciation recapture is done by the program in the background "for you".

At this point, my total sales price reported is $130,000 and I've already account for the total $5,000 in sales expenses. I have $170,000 left of my sales price to report.

NEW CENTRAL A/C SALES PRICE: $70,000

NEW CENTRAL A/C SALES EXPENSES: $0 (I've already used up all my sales expenses at this point.)

With this I show a $60,000 gain on the sale of the central A/C asset. The recaptured depreciation (which the program does for you in the background) is added to this gain.

At this point, I've accounted for $200,000 of my sales price. I have $100,000 to go.

NEW ROOF SALES PRICE: $100,000

NEW ROOF SALES EXPENSES: $0 (I've already used up all my sales expenses)

Now I have an $80,000 gain on the sale of the roof. The program will recapture all prior depreciation taken on this asset and add it to the sales price of this asset "for me" in the background.

With the above scenario, the SCH D and the form 4797 will be correct.

If you add up the sales prices on all assets, the total matches perfectly my contracted sales price of $300,000. If you add up the sales expenses on all assets, they match exactly the sales expenses I paid in total for the sale.

With the sales price of each asset "at least" $1 over my original acquisition costs, all depreciation taken on that asset is recaptured as required.

If I were to show a loss on any one asset, then depending on the amount of the loss the depreciation recapture would be wrong, thus the SCH D would be wrong. The worst part of such a scenario is, since the math will be "right" as far as the program is concerned, no errors will be flagged and you will be allowed to e-file successfully. But you risk getting a mail audit by the IRS when they see you sold at a gain, yet haven't recaptured all prior depreciation on all assets.