Solved: I sold my rental property for 40000.00 cost is 200,000 and occupied for 5 yrs before turn to rental property. How I report this sale?
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New Member

I sold my rental property for 40000.00 cost is 200,000 and occupied for 5 yrs before turn to rental property. How I report this sale?

Bought: 09/15/1999. Stayed in house until Oct/2006

Cost: $199,000.00

Placed for rental: Oct/2006

Sold: Oct 15,2016

Amount: $400,000.00

1 Best answer

Accepted Solutions
New Member

I sold my rental property for 40000.00 cost is 200,000 and occupied for 5 yrs before turn to rental property. How I report this sale?

It depends on your rental activity during the year.

  • Under the rental section - if rented during 2016
  • Under the sale of business property - if not rented during 2016

(You will not be able to claim the home gain exclusion on this rental sale because you did not use the home as your "primary residence" for 2 of the last 5 years before the sale. See Sale of Your Home for more information on the exclusion.)

Additionally, when you sell a property that was used as a rental, you must pay 25 percent recapture tax (also referred to as Section 1250 recapture) as well as regular state income tax on the depreciation you claimed. (Remember the IRS will assume that you claimed the correct amount of depreciation every year—this is true regardless of whether you actually claimed any depreciation on your tax return).

In order to calculate the capital gain or loss when you sell a residence that had been converted to rental property, you need to know three things:

  • Your adjusted tax basis in the property (both at the time of the conversion and the time of the sale)
  • The sale price
  • The fair market value of the property when it was converted to rental property

If the converted property is later sold at a gain, the basis for purposes of determining the capital gain is your adjusted tax basis in the property at the time of the sale. If the sale results in a loss, however, the basis used is the lower of the property's adjusted tax basis at the time of the conversion or the fair market value when the property was converted from personal use to rental property. This loss rule ensures that any deflation in value occurring while the property was held as a principal residence does not later become deductible upon your sale of the rental property; a loss on the sale of a principal residence is not deductible. As usual, you calculate your capital gain by subtracting your adjusted basis from the sale price of the property.

Click this link for further information about reporting the sale of a capital asset

To enter your rental sale under the rental section in TurboTax Online or Desktop, please follow these steps:

  1. Once you are in your tax return, click on the “Federal Taxes” tab ("Business" tab in TurboTax Home & Business)
  2. Next click on “Wages & Income” ("Business Income and Expense" in TurboTax Home & Business)
  3. Next click on “I’ll choose what I work on” (Jump to full list)
  4. Scroll down the screen until to come to the section “Rental Properties and Royalties”
  5. Choose “Rental Properties and Royalties” and select “start’ (or “update” is you have already worked on this section)
  6. If your rental property is listed, you will need to select "edit" to access this information. Otherwise enter your rental property information. (If you are entering your rental information for the first time, you will need to add the rental house as an asset under step 16)
  7. Is This a Rental Property or Royalty? - choose rental and put rental information and address
  8. What Type of Rental is This? - choose rental type (ie: Single family (home or unit where a single family lives))
  9. Do Any of These Situations Apply to This Property? - select sold
  10. Was This Property Rented for All of 2016? - answer questions based on your circumstances
  11. Property Ownership - select your ownership percentage
  12. Indicate if you Actively Participate - yes or no (If yes, this allows some of the passive losses to be used against passive income)
  13. Did You Pay Anyone $600 or More for Work Related to This Property? - yes or no
  14. Is Your Property in Any of These Designated Areas? - Usually "none of the above"
  15. Review Your Rental Property Rental Summary
  16. Select Sale of Property/ Depreciation section. Here is some additional information you will need to select under the sale of property section: 
    1. About 3 screens in, if the house is listed under this section, you will select that you want to edit this property
    2. About 4 screens more, check box that you sold the property under "Tell us about this rental asset" (
    3. For the special handling screen - say "no" (Please note that if you used FMV at the time of conversion to a rental for your depreciation (as opposed to adjusted basis), you will want to answer "yes" here and enter the sale under the sale of business property section (see below).)
    4. Home Sale - select "yes" if sale of main home.
    5. Sales Information - enter the sales price information  You will need to allocate the net sales proceeds into asset sale and land sale. If your proceeds are not allocated, you can use the same percentage of asset and land from the original purchase for the sales proceeds allocation

To enter this rental sale under the sale of a business property in TurboTax Online or Desktop, please follow these steps:

  1. Once you are in your tax return, click on the “Business" tab ("Federal Taxes" tab in Premier)
  2. Next click on “Business Income and Expense" ("Wages and Income" tab in Premier)
  3. Next click on “I’ll choose what I work on” (Jump to full list)
  4. Scroll down the screen until to come to the section “Less Common Business Situations” ("Business Items" in Premier)
  5. Choose “Sale of Business Property” and select “start’
  6. Select "Sale of business or rental property that you haven't already reported"
  7. Sale of Business or Rental Property - yes
  8. Enter all the information about your Rental Property Sale here
    1. Description - address of property
    2. Date acquired - original acquisition date
    3. Date sold - date of sale (should be on 1099-S)
    4. Total sales price - total sales price (should be listed on 1099-S)
    5. Cost of property (or tax basis) plus expenses of sales - original cost plus any capital improvements plus expenses of sales
    6. Depreciation taken on this property - total depreciation taken property when rental (Please note the IRS will assume that you have taken the correct depreciation on your rental property while your property was available for rent regardless of whether you have actually take it or not)
  9. What type of property is this? - select - Rental estate that I took depreciation on.
  10. Installment sales - no if not on installment sale
  11. 2 screens that show the summary of what you have entered for your property sale
  12. Sale of Other Business Property - Choose yes if any of these situation apply, otherwise choose no.
    1. You sold property that cannot be depreciated such as vacant land, mineral rights or inventory
    2. You sold business or rental property that you owed for one year or less
    3. You sold business or rental property at a loss.
  13. Total Gross Proceeds - enter your 1099-S sales information here (this could be the same amount that was reported earlier as sales price)

View solution in original post

1 Reply
New Member

I sold my rental property for 40000.00 cost is 200,000 and occupied for 5 yrs before turn to rental property. How I report this sale?

It depends on your rental activity during the year.

  • Under the rental section - if rented during 2016
  • Under the sale of business property - if not rented during 2016

(You will not be able to claim the home gain exclusion on this rental sale because you did not use the home as your "primary residence" for 2 of the last 5 years before the sale. See Sale of Your Home for more information on the exclusion.)

Additionally, when you sell a property that was used as a rental, you must pay 25 percent recapture tax (also referred to as Section 1250 recapture) as well as regular state income tax on the depreciation you claimed. (Remember the IRS will assume that you claimed the correct amount of depreciation every year—this is true regardless of whether you actually claimed any depreciation on your tax return).

In order to calculate the capital gain or loss when you sell a residence that had been converted to rental property, you need to know three things:

  • Your adjusted tax basis in the property (both at the time of the conversion and the time of the sale)
  • The sale price
  • The fair market value of the property when it was converted to rental property

If the converted property is later sold at a gain, the basis for purposes of determining the capital gain is your adjusted tax basis in the property at the time of the sale. If the sale results in a loss, however, the basis used is the lower of the property's adjusted tax basis at the time of the conversion or the fair market value when the property was converted from personal use to rental property. This loss rule ensures that any deflation in value occurring while the property was held as a principal residence does not later become deductible upon your sale of the rental property; a loss on the sale of a principal residence is not deductible. As usual, you calculate your capital gain by subtracting your adjusted basis from the sale price of the property.

Click this link for further information about reporting the sale of a capital asset

To enter your rental sale under the rental section in TurboTax Online or Desktop, please follow these steps:

  1. Once you are in your tax return, click on the “Federal Taxes” tab ("Business" tab in TurboTax Home & Business)
  2. Next click on “Wages & Income” ("Business Income and Expense" in TurboTax Home & Business)
  3. Next click on “I’ll choose what I work on” (Jump to full list)
  4. Scroll down the screen until to come to the section “Rental Properties and Royalties”
  5. Choose “Rental Properties and Royalties” and select “start’ (or “update” is you have already worked on this section)
  6. If your rental property is listed, you will need to select "edit" to access this information. Otherwise enter your rental property information. (If you are entering your rental information for the first time, you will need to add the rental house as an asset under step 16)
  7. Is This a Rental Property or Royalty? - choose rental and put rental information and address
  8. What Type of Rental is This? - choose rental type (ie: Single family (home or unit where a single family lives))
  9. Do Any of These Situations Apply to This Property? - select sold
  10. Was This Property Rented for All of 2016? - answer questions based on your circumstances
  11. Property Ownership - select your ownership percentage
  12. Indicate if you Actively Participate - yes or no (If yes, this allows some of the passive losses to be used against passive income)
  13. Did You Pay Anyone $600 or More for Work Related to This Property? - yes or no
  14. Is Your Property in Any of These Designated Areas? - Usually "none of the above"
  15. Review Your Rental Property Rental Summary
  16. Select Sale of Property/ Depreciation section. Here is some additional information you will need to select under the sale of property section: 
    1. About 3 screens in, if the house is listed under this section, you will select that you want to edit this property
    2. About 4 screens more, check box that you sold the property under "Tell us about this rental asset" (
    3. For the special handling screen - say "no" (Please note that if you used FMV at the time of conversion to a rental for your depreciation (as opposed to adjusted basis), you will want to answer "yes" here and enter the sale under the sale of business property section (see below).)
    4. Home Sale - select "yes" if sale of main home.
    5. Sales Information - enter the sales price information  You will need to allocate the net sales proceeds into asset sale and land sale. If your proceeds are not allocated, you can use the same percentage of asset and land from the original purchase for the sales proceeds allocation

To enter this rental sale under the sale of a business property in TurboTax Online or Desktop, please follow these steps:

  1. Once you are in your tax return, click on the “Business" tab ("Federal Taxes" tab in Premier)
  2. Next click on “Business Income and Expense" ("Wages and Income" tab in Premier)
  3. Next click on “I’ll choose what I work on” (Jump to full list)
  4. Scroll down the screen until to come to the section “Less Common Business Situations” ("Business Items" in Premier)
  5. Choose “Sale of Business Property” and select “start’
  6. Select "Sale of business or rental property that you haven't already reported"
  7. Sale of Business or Rental Property - yes
  8. Enter all the information about your Rental Property Sale here
    1. Description - address of property
    2. Date acquired - original acquisition date
    3. Date sold - date of sale (should be on 1099-S)
    4. Total sales price - total sales price (should be listed on 1099-S)
    5. Cost of property (or tax basis) plus expenses of sales - original cost plus any capital improvements plus expenses of sales
    6. Depreciation taken on this property - total depreciation taken property when rental (Please note the IRS will assume that you have taken the correct depreciation on your rental property while your property was available for rent regardless of whether you have actually take it or not)
  9. What type of property is this? - select - Rental estate that I took depreciation on.
  10. Installment sales - no if not on installment sale
  11. 2 screens that show the summary of what you have entered for your property sale
  12. Sale of Other Business Property - Choose yes if any of these situation apply, otherwise choose no.
    1. You sold property that cannot be depreciated such as vacant land, mineral rights or inventory
    2. You sold business or rental property that you owed for one year or less
    3. You sold business or rental property at a loss.
  13. Total Gross Proceeds - enter your 1099-S sales information here (this could be the same amount that was reported earlier as sales price)

View solution in original post

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