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H2G
Level 2

Profit calculation of Main home converted to rental property

I purchased a property in 2005 for 167K as my primary residence.

 

In 2011 I converted it to a rental and the property was valued at 127K at that time. Since then I have captured the depreciation each year for a total of about  say 45K.

 

I am now selling the property for around 207K(after commissions/fees etc). The actual profit on the unit is really the depreciation amount of 45K and the difference between the sale price and the cost which is another 40K. 

 

Do I have this correct?

 

Thanks for your help clarifying this. 

9 Replies
Mike9241
Level 15

Profit calculation of Main home converted to rental property

no you are not. your profit is 85K   207K - (167K - 45K) = 122K

of the 85K profit,  45K is recaptured as section 1250 gain - the depreciation taken

the other 40K is taxable as long-term capital gain

from what you presented you do not qualify for the home sale exclusion 

to be eligible for the home sale exclusion you must have 1) owned it and 2) used it as your principal residence for 2 out of 5 years before the sale. you fail the second test making the other 40K taxable.

  

 

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Critter-3
Level 15

Profit calculation of Main home converted to rental property

Because your original basis and the lower depreciated basis are not the same  so the usual program "Sch E sale interview" will  not work correctly so you will either need to make the  corrections yourself in the sale of business assets section or seek assistance from a professional tax preparer (either locally or upgrade to the LIVE option) in the Online version. 

tagteam
Level 15

Profit calculation of Main home converted to rental property

@Critter-3 and @Mike9241 are correct.

 

You need help with this @H2G; TurboTax does not handle the scenario you presented (at least not without resorting to Forms Mode, which is only available in the CD/Download (installed) products. Even then, there is a high likelihood that errors will be made so you will need professional guidance.

 

See https://digitalasset.intuit.com/DOCUMENT/A6QrdFCgW/010421-2020-unsupported-calcs-L1FQfTTgn.pdf

Hal_Al
Level 15

Profit calculation of Main home converted to rental property

Q.  I am now selling the property for around 207K(after commissions/fees etc). The actual profit on the unit is really the depreciation amount of 45K and the difference between the sale price and the cost which is another 40K.  Do I have this correct?

A.  Yes.

 

You can use TurboTax (TT), but don't report the sale in the rental section.  Instead, report it under Business Items - Sale of Business property.  The interview is much simpler, as TT asks you to enter the depreciation taken, rather than calculating it for you. 

tagteam
Level 15

Profit calculation of Main home converted to rental property


@Hal_Al wrote:

You can use TurboTax (TT), but don't report the sale in the rental section.  Instead, report it under Business Items - Sale of Business property. 


This will work, but the user still has to "dispose" of the property in the rental section of the program if TurboTax was used in prior years.

Critter-3
Level 15

Profit calculation of Main home converted to rental property

To "dispose" of the rental in the TT program you need to "convert to personal use" to stop the depreciation.   I highly recommend seeking professional assistance if the user is unsure of what they are doing to keep from wasting a lot of time and hair pulling.  

tagteam
Level 15

Profit calculation of Main home converted to rental property


@Critter-3 wrote:

To "dispose" of the rental in the TT program you need to "convert to personal use" to stop the depreciation.


Exactly, and without user intervention, the program will automatically deduct depreciation for the year on Schedule E. Then, unless the user makes an adjustment in the Sale of Business Property section, current year depreciation will also be included in the total accumulated depreciation figure on Form 4797. 

H2G
Level 2

Profit calculation of Main home converted to rental property

All,

Thanks for all the feedback and the info. It's been very helpful. I haven't sold the property yet; but wanted to know in prep for next year's taxes. I have been using TT all these past years, so I plan on using it again but will upgrade to the Live Delux option.

 

H2G

 

tagteam
Level 15

Profit calculation of Main home converted to rental property

I suspect you would want to upgrade to Premier since you have rental property, @H2G.

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