Purchased house in Sept. 2007 for $679,950, added $83,931 in remodeling improvements immediately after purchase. Primary residence from Feb. 2008 - Dec. 2008. Vacant for all of 2009. Placed into service as a rental in Jan. 2010 with a FMV of $559K (with land valued at $148,616). Rented from Mar. 2010 - May 2015. Prior Depreciation for 2010 - 2014 of $72,993. House sold in May 2015 for $670K. Settlement charges for the sale $34,756.
Basis for gain = $679,950 + $83,931 + $34,756 - $72,993 = $725,644
Basis for loss = $559,000 + $34,756 - $72,993 = $520,763
My understanding is that because the sale of $670K falls between the gain and loss, that there is no gain or loss on the sale of the rental house.
My problem is how do I report this information on turbo tax? I do have access to the forms.
Any help would be greatly appreciated!
Thank you!
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You will enter this sale under the rental section.
Please note that because you rented the property for more than 5 years before the sale after the conversion date, you will not able to claim the home gain exclusion.
You are only allowed to take the gain exclusion as long as you considered the home your "primary residence" for 2 of the last 5 years. You could live in it for two years and then rent it for three years and then sell it (so long as it is sold within the five year mark from when you first lived in it as your primary residence).
See this IRS link for more information on the exclusion:
https://www.irs.gov/taxtopics/tc701.html
When if comes to the sale of your rental, if is important to determine the basis in the property (usually cost plus capital improvements less depreciation (less any casualty loss, if any)) because this will determine that amount of capital gain or loss. Rental income/expenses for the year (unless deprecation or expenses directly related to the sale) will not be included in your capital gain or loss calculation.
Additionally, when you sell your property, you must pay 25 percent recapture tax (also referred to as Section 1250 recapture) as well as regular state income tax on the depreciation you claimed. (Remember the IRS will assume that you claimed the correct amount of depreciation every year—this is true regardless of whether you actually claimed any depreciation on your tax return). .
To enter your rental sale under the rental section in TurboTax Online or Desktop, please follow these steps:
Hi @rodney1 , I'm in the same boat. How did you resolve this? Thank you.
@Bachatera Click this link for instructions on How to Report Sale of Rental Property.
Thank you. I read through this link but couldn't find the answer. Shall I report a loss (using adjusted cost at purchase) or a gain (FMV when converted to rental)? In IRS Publication 544, it says to treat it as 0 (no loss and no gain) - if so, how do I enter that in TT? @MarilynG1
@Bachatera Per @MikeinSC:
"The tax law, as I understand it, will allow you to use your original cost vs the adjusted depreciable basis when computing this gain (you still need to recapture depreciation on the sale), but if adding the amount of the original reduction you made creates a loss, you cannot take this loss. If you still have a gain after adding that amount back, you can use that in your basis.
I would add an amount as a separate item as a basis adjustment, as in a cost of the sale, to see if there is a gain or a loss. If you have a loss you will have to reduce that amount, if you have a gain, you are good to go.
Sale will be reported on form 4797 to see the computation of gain/loss."
Click this link for more info that may help you with Sale of Rental on Form 4797.
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