Is the benefit of increasing my cost basis lost?
For the most part, yes.
Do I, and can I, amend my 2008 return?
No. Since the property was originally used as your primary residence, your amortized closing costs were fully deductible in 2006 - the year you purchased the property. Most likely, you did deduct them in 2006. So you can't claim them twice. Understand this:
- Cost associated with acquisition of the property are added to the cost basis of the property.
- Cost associated with acquisition of the loan are either fully deductible in the year of acquisition (for primary residence) or are amortized and deducted over the life of the loan (for rental property).
Can I simply add these costs to my basis when I file in 2022?
Changing the cost basis will totally screw up the depreciation history. If you amend, say for example back to 2008, then you will have to amend every single tax return after in order to correct the depreciation for every year. Here's just some of the issues with that:
- You can only amend a return for the current tax filing year (2021 right now) and three years back. If you go back more than three years and the amend means you owe the IRS more money, you have to pay it with any interest, penalties and late fees. If it means you get additional refund, then you won't get it due to the three year statute of limitations for this.
- You can not use TurboTax to amend more than three years back. This is because TurboTax only supports their software for the current tax filing year and three years back. Therefore, updates for the program for tax years 2017 and older are just flat out not available. This means there is a high probability the amended return will be wrong, and TurboTax only honors their 100% accuracy guarantee for the software currently supported.
- Most likely, since this would require you to go more than 2 years back, simply amending for an incorrect cost basis may not be acceptable. More than likely the IRS would required a 3115 to be filed. While the 3115 is included with the TTX program, it is not simple by any stretch. If the 3115 is required, then it's "HIGHLY" advised you seek professional help. The cost of professional help could be more than you would save - thus cancelling out any gain you might realize from doing so. Doing this form wrong can be significantly more costly than not doing it at all. You can double that cost if your state also taxes personal income.
Also, does Turbo tax provide a field for adjusting cost basis for items like this as well as for selling expenses and the like or is this done on scratch paper?
The program provides many fields for many things. But not every possible scenario. Especially a scenario where a use may believe they made a mistake on a past return.
If you report the sale in the SCH E section, and if there's a long list of assets in the "Sale of Assets/Depreciation" section. then a bit of manual math may be necessary. Or it may not. Here's the general guidance for reporting the sale of rental property in the SCH E section.
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 2021". Select it. After you select the "I sold or otherwise disposed of this property in 2021" 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 if it's zero. Then you MUST work through the "Sale of Property/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 on some assets. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1 on some assets.
Basically, when working through an asset you select the option for "I stopped using this asset in 2021" 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.
