Input Sale of Residential Property Using 1099-S and Sellers Settlement Statement

[ToughQuestions]

Aloha,

I've been spending all night trying to figure out exactly which numbers to input and where. The situation is, I own 50% of this property located in the State of Nevada. As you may be able to tell, we're residents of Hawaii. We sold it in March of 2020 and was able to collect one month worth of rent in January before it was listed for sale.  Paid a little bit of mortgage interest. Though, not relevant to the story.

Sellers Settlement Statement has sale price of property at $288,000. The 1099-S sent reflects $144,000 in box 2 (not split into 50%). The difference between the two is the mortgage principle, commissions, transaction fees, recording fees, escrow charges, new loan chargers, and seller's credit to buyer's closing costs.

Under Property Profile, I clicked the following:

1. Is this a Rental Property or Royalty?
   1. Selected "Rental Property" named as "Second home that I rent out" and inputted address of property.
2. What Type of Rental?
   1. Selected Single Family Home.
3. Do any of these situations apply to this property?
   1. Under sold, selected "I sold or disposed of this property in 2020."
      1. It then notes: You'll enter details of this sale when you reach the depreciation section later."
4. Was this property rented all of 2020?
   1. Selected No. Rented for 31 days (month of January). 
5. Property Ownership
   1. Selected No, I owned less than 100%.
6. We can automatically divide your income and expenses for you.
   1. Yes, I will enter total amounts.
      1. Ownership percentage: 50%
7. You indicated you actively participate.
   1. Yes. I am an active participant.
8. Did you pay anyone more than $600 for work related to this property?
   1. No, I did not pay for work that required a form 1099.
9. Let us enter rental info for you.
   1. Enter rental info myself (I don't have any of those programs or resources to self populate data).
10. Is your property in any of these designated areas?
    1. None of the above.

Sale of Property/Depreciation

1. Do you want to go directly to your asset summary?
   1. Yes, I want to go to my asset summary.
2. I have one residential listing.
   1. Selected "edit"
3. Review Information
   1. Date: 6/1/2015
   2. Residential Rental Real Estate
   3. Cost: Autofilled with number higher than my original 2015 input
   4. Land: Autofilled with number higher than my original 2015 input
   5. Business: 100%
   6. Prior depreciation: $24,007
4. Did you stop using this asset in 2020?
   1. Yes.
5. Disposition Information
   1. Date of Sale: 3/16/2020
   2. Date Acquired: 4/29/2015
6. Special Handling Required?
   1. No.
7. Home Sale
   1. No.
8. Sales information (this is where I get stuck)
   1. Asset Sales Price:
   2. Asset Sales Expenses:
   3. Land Sale Price:
   4. Land Sale Expenses:

Is the 1099-S and Sellers Settlement Statement enough to fill out the above with the autofilled ratio of cost to land? If so, how would I use that information in a way to properly allocate asset vs. land price and expenses?

I noticed it's not written in the form of Sale Price of Property (from sellers settlement statement) less cost basis (from autofilled cost in Review Information) so there must be more to it - though, that would make the most sense to me in the sense of capital gains tax. What am I missing here? Do we also need to reach out to our agent to get proper asset to land ratios?

[ColeenD3]

First off, the settlement statement, Form 1099-S does not report amounts after sales expenses. It reports the gross proceeds. From the back side of the form:

Box 2. Shows the gross proceeds from a real estate transaction, generally the sales price. Gross proceeds include cash and notes payable to you, notes assumed by the transferee (buyer), and any notes paid off at settlement. Box 2 does not include the value of other property or services you received or will receive.

Your $144,000 is exactly your half of the $288,000. 

Sales information (this is where I get stuck)

1. Asset Sales Price: $144,000
2. Asset Sales Expenses: $9,000
3. Land Sale Price: however much of that is allocated to land, for our example, 10% so $14,400
4. Land Sale Expenses: $1,000 (10%)

Total sales expenses are $10,000

[ToughQuestions]

Aloha!

I think this is great information.

If they split our gross proceeds on the 1099-S and I put 50% ownership in the ownership percentage, does that conflict with each other? If not, is the idea that I would also split the total expenses in half and input it?

If they do conflict (ownership percentage and amount inputted), is it recommended I choose to put in my own numbers then follow the above?

[ColeenD3]

Yes, you have to conform to what the 1099-S says. If they split the sales amount, you now enter 100% of your half.

[ToughQuestions]

Aloha,

I'm hoping this is the last clarification. With the information given above,
Sale of Property/Depreciation

Review Information

1. Date: 6/1/2015
2. Residential Rental Real Estate
3. Cost: Autofilled with number higher than my original 2015 input
4. Land: Autofilled with number higher than my original 2015 input
5. Business: 100%
6. Prior depreciation: $24,007

Does the Cost and Land amount inputted now need to be divided in half? Currently, the cost inputted is a little over the full purchase price of the house in 2015 (170k+). I'm concerned this actually makes the house look like it's been sold at a loss which would be incorrect. If I cut it in half, then it does seem to correctly calculate a gain of around $71k.

Also, I appreciate the quick responses. Thank you very much for walking me through this section.

[DianeW777]

If you are saying the the transferred information from 2019 carried into your 2020 return incorrectly for your residential home and the land for that home, then you need to use the 2019 depreciation worksheet and correct the asset information with the actual figures used when you originally began the rental activity, which was 2015, according to your statement. 

It would be fine to enter 50% of the original cost for both building and land to make a more clear sales process for the 50% rental, including the land. Then change your percentage to 100%. This eliminates the half that does not belong to you or was a personal use portion. 

Property Profile  number 4, in your original post you must say 'Yes' it was rented all year (this means the portion of the year that you owned it); and 'Yes' it was rented all year at fair market value.

All other information provided should be followed.

Once these corrections are made you should see the accurate gain recognized.  Please update if you have more questions.