I have a pretty simple situation I am trying to report: just the simple sale of a rental property we have owned for 6 years.
Navigating turbotax has me very confused. What section of turbotax premier should I be in to enter the relevant information?
While reporting the sale of rental property in TTX is rather easy, knowing whee to start is not exactly what I would call "complete" or even "intuitive".
Reporting the Sale of Rental Property
If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.
Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in 2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).
Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets. You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset. Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1
Basically, when working through an asset you select the option for "I stopped using this asset in 2019" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.
When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.
Just my basic info:
We sold one duplex rental property in July 2020 that we bought in 2014 for a taxable gain of almost $105,000.
We never lived in the duplex.
I did indeed enter the relevant information from the sale in the "sale of property/depreciation" section, but I was extremely confused when it asked me the cost "plus freight, installation..." (I mean what the heck why is this being asked about sale of real estate?)
Also this issue of "assets" - I mean it is a single rental property, am I being asked to break this down into appliances and retaining walls etc?
Also, turbotax seems determined to characterize the sale of this rental property as a sale of a "business", but we owned the one single property. We never held it in an llc or pass through entity (whatever the heck that is).
In fact, turbotax put the actual capital gains result from what I entered in the "rental properties and royalties" section down in the "business items" section under "sale of business property"!
When I did the state part of my taxes (Oklahoma), turbotax insisted I tell them my "pass through entity name" and "federal ID number".
My very limited understanding of rental property taxation includes the concept that we are definitely not a "business" (we are not managing an apartment complex full-time, we have one single duplex property), this is a simple "investment".
I don't understand why turbotax seems to be pushing us into the "business" category.
My very limited understanding of rental property taxation includes the concept that we are definitely not a "business"
Your understanding is a bit skewed. it's both a business and an investment. Think of your rental property as a "business investment." You probably think otherwise because your rental stuff is reported on SCH E instead of SCH C. There's a reason for that.
SCH C income (which you already know is for a business with a single owner) is "earned" income. This means you actually go out an "do something", usually on a recurring basis to actually earn that income. With earned income, it's subject to regular taxes, as well as the additional 15.3% self-employement tax. The SE tax is basically the employer's share of the Medicare tax and contributions to your social security account. This income counts towards what you may qualify to receive in social security when you reach retirement age. Additionally, this income can be included when figuring your maximum allowed retirement contributions to a 401(k), IRA, or other tax deferred retirement account each year.
SCH E income, which is another "type" of business income, is called passive income. You don't actually go out and do anything to "earn" this income. All you do is "sit there" and collect it every pay period. This type of income is also subject to the regular income tax. However, it is not subject to the additional 15.3% self-employment tax. This money can not be used to figure your maximum allowed contributions to a tax deferred retirement account, and it also doesn't count when figuring the amount of social security you may qualify for when you reach retirement age. The two types of passive income reported on SCH E are rental income, as well as royalty income.
There are also other types of passive income one can receive. But they get reported elsewhere. One example would be the interest income you receive on your savings account from your bank each year.
Thanks for all of that Carl.
My biggest sticking point is in my state of Oklahoma taxes where turbotax deals with the capital gain from the duplex sale and is insisting I tell them:
(1) "name of pass through enity or business"
(2)"federal identification number for pass through entity or business" and
(3)"date you acquired ownership of pass through entity or business"
Turbotax will not let me pass the state review without this information!
FWIW I have been doing my taxes with turbotax every single year we have owned the duplex, and have never been asked for this information by federal or state.
Do I have such a federal identification number that applies to our duplex ownership?
Since you're dealing with state taxes, I can't be of any help at all. I don't "do" states, since my state of FL does not tax personal income. Just never had to deal with it.
But if I were to make a wild guess based on no facts what-so-ever, it "sounds" to me like you told the state program that you received a K-1 for that rental property, from a business entity of some type that you have ownership in. All I can suggest, is that you delete the state return and start it anew from scratch, so it can report needed data from the federal return you've already completed.