Capital gains taxes due should be a zero?

[cottagecharm11]

We sold a second home last year, that was first used for a rental, and converted to personal use in 2014. I need to pay 15% capital gains tax on the adjusted basis for the proceeds of the sale. When I try to enter it manually, because TT does not automatically calculate it for me, TT will not let me.  I assume that is because it is supposed to flow from a Form? I have filled out the  TT Form, Qualified Dividends and Capital Gains Worksheet.  On line 25 of that form it has "zero" for the "Tax on all taxable income". The other forms I used are Schedule D, and Form 8949. Any ideas what could be wrong?  We have reviewed everything multiple times and cannot figure this out. Thanks, we really appreciate any help!

[AmeliesUncle]

Unless you REALLY know what you doing, don't be filling out the worksheets directly.

If you go through the "Sale of Home" section, it should walk you through everything.  It is designed for reporting the sale of your main home, but it should be able to report the sale of your second home fine (just be sure to say it was NOT used as your Principal Residence for that last 2 years).

[cottagecharm11]

We tried to enter it under the Sale of Home area and answered correctly that we did not live in the house for the last 2 years. It still will not calculate the taxes we owe and it shows we owe zero taxes on the capital gain. Form 1040 Line 15 lists our  total taxable income at $80,206, and line 16 lists $31 in taxes we owe, that is for taxes on a dividend. According to TT we are  due a refund of $5300 for federal taxes we paid.  At this point using TT Community for help by tax experts  we have been told to enter this sale in three different areas. We were first tried to enter it under Business Items, using the Sale of Business Property area. This did not work. When we asked for help we were told because we stopped renting the house out in 2015 that we cannot use the Business category. When that did not work we were told to enter it using Investment Income, Stock, Mutual,  Funds, Bonds, Other. We did that and it said our tax on the capital gains were still zero. Then today we attempted to enter the sale as Less Common Income, Sale of Home with the same result. We are not entering this information directly into the forms, we are using the interview method of data entry. This is a home we rented from 2001 to 2014 and then converted to a second home when we moved out of state. I am wondering if it is because after the Standard Deduction of $26,200 (I am a senior) is taken off our income, we  only have $206 for income and we are in the zero capital gains tax bracket. Thanks for your help!

[Carl]

Apparently the programmers have changed things quite significantly. @GabiU please check me on the below. In the past in the Investments section it used to specifically ask if you sold a 2nd home. But now it doesn't. Talke about 2 steps backwards. 🙂

Under the personal income tab, under the Investments section elect to start/update Stocks, Bonds, Mutual Funds, Other.

- Did you sell any investments in 2020? Click YES.

- Did you get a 1099-B or Brokerage Statement? Click NO.

- Tell us about this sale? Select to enter one sale at a time, then continue.

- For description, enter whatever, such as "2nd home" for example.
  Date Sold - Enter the closing date of the sale.

  Date Acauired - enter the date you originally purchased and closed on your acquisition of the property.

  Sale Proceeds - Enter the amount you sold the property for, as shown in your sales contract.

  Cost or Other Basis - Enter what you paid for the property when you originally purchased it, plus what you paid for any property improvements during the entire period of time you owned it.

  For Holding Period, select "Long Term (Box f)", then continue.

- On the screen, "Any of these less common items for this sale?" leave everything blank and click the DONE button.

 - Was this a sale of employee stock? Select NO and continue.

 - On "Select any less common adjustments that apply" select the one for "the reported sale price did not deduct all fees or selling expenses".  Then enter the total of your sales expenses.

 - On the same screen select the option for "an adjustment is required for a reason not already covered". Then enter the sum of the total amount of depreciation you have taken on the property and all of it's assets, and the PAL carry over losses from form 8582. Weather this will be a positive number or negative number will depend on the math. Then continue.

Get the 8582 from the tax return for the last year you reported this property on SCH E. More than likely you will be subtracting the PAL carry over losses from the total depreciation taken on the property.

- Select "No, lets see a summary of my entries" and continue.

- Click DONE, then click NO. Then click DONE again, and that should do it.

Now depending on your numbers, it's perfectly possible you have no taxable gain if your carry over losses cancel out the recaptured depreciation *and* any gain realized on the sale.

[cottagecharm11]

It may be our low income for 2020. I just edited my post a minute ago. Our income after the standard deduction was only $206.00, could that be it?

[Carl]

Our income after the standard deduction was only $206.00, could that be it?

Absolutely. Take a look at your SCH D and 4797 for the math on your sales figures. The 4797 bottom line gets transferred to line 4 of the SCH 1.

[cottagecharm11]

Thanks so much Carl! We have been going crazy for two days now trying to figure out why we were not being taxed on the capital gains.  You gave us such very detailed instructions which confirmed we did it exactly right. 

[Carl]

The only thing I question/wonder about (and it's really none of my business) is how you end up with only $206 of taxable income for an entire tax year. Especially since there's two of you involved as indicated by your reference to "we", and especially after selling the property at a gain. I wonder if you don't have other issues outside of this sale that may be wrong on the tax return. But again, that's none of my business. You know what you got.

[cottagecharm11]

My husband was unemployed last year, and the first $10,200 of his unemployment was not taxable. I work taking care of my disabled daughter and that income is not taxable due to the Difficulty of Care Act, notice 2014-7. We had rental losses of over $3,366, thanks to Covid and tenants that did not pay rent. After the $26,200 standard deduction (I am a senior) we did have a little interest income. I looked at Schedule 1, like you suggested and it shows our income as $1282. So I guess it was a good year to sell this property, since we did not want to replace it. Does that make sense? 

[eldonwright]

Reply

[Carl]

Makes perfect sense to me. Even with your SS income being reported, your other income was not high enough to cause any of the SS to be taxable either - even after the gain from the sale apparently. Looks like you hit things right on the mark for selling that property.

[cottagecharm11 · Accepted solution]

That is big relief to know we have that part of the taxes figured out correctly and we don't owe a lot of money. Yes, I had forgotten I had my meager social security income too. LOL. We are still struggling with filling out the Business Sale of a vehicle last year, for a truck that was used for our rentals. Is there a good place to read up on how to fill out that form? The business use was minimal and we used the Standard Mileage Deduction method. We probably won't owe any gain on that sale either, but we want to make sure we fill it out correctly. Thanks for all your help!

[Carl]

Am I correct in assuming the vehicle was not sold as "a part of" the rental property or other real estate sale?

[cottagecharm11]

No, it was not part of any real estate sale.

[Carl]

Then I also assume the vehicle was less than 100% business use, most likely significantly below 50% business use. I further assume that because it was less than 100% business use, you took the "per mile" deduction each year. A portion of the per-mile deduction is depreciation.

When selling the vehicle, you are required to reduce your cost basis of the vehicle by the amount of depreciation taken. Then any gain realized over the cost basis is reportable income. Now I seriously doubt you sold the vehicle at a gain even when taking into account the depreciation. Additionally, losses on the sale of personal property are not deductible. Finally, your business losses on the sale won't help either since your tax liability for 2020 is already zero.

Therefore I would not bother with reporting the sale since it's a loss and you can't deduct the personal side of it anyway. Additionally, the business side deduction won't help since the tax liability is already zero. So I would just indicate the vehicle was removed for personal use and leave it at that.