How do you book depreciated assets when selling investment property?

[GregG33]

I sold my investment property this year, and had to install a new roof in 2017 for about $10K that I have taken depreciation for in 2018 and 2019.  This gives me 2 entries under "property assets" -- the house and the roof.  For the house, I believe I should book this by reducing the sales price of the house by $10K.  For the roof, I believe I should enter the sales price of the roof as $10K (no profit or loss) while also entering the prior depreciation taken.  Is this correct?  Any other considerations?  Thank you!

[ThomasM125 · Accepted solution]

You need to allocate the sales price to the building, land and roof. Then when you report the sale, the depreciation will be factored into any potential gain, so that it can be recaptured as ordinary income, from which it was deducted when you took the depreciation.

So, pull up the assets in TurboTax and report the sale of them and allocate the sales price based on the cost of the building, land and roof or by any other method that is reasonable.

[GregG33]

Thanks!  I'm assuming I do the same with the expenses from the sale of the house, allocating them across the house / land / roof based on the percentage of the overall sales price, correct?  Thanks again!

[ThomasM125]

@GregG33 Yes, that is correct! The land does not have any depreciation on it, so all of that portion of the gain will be taxed at the normally more favorable capital gain rates, so you want to make sure you don't underestimate the sales price allocated to the land.

[GregG33]

OK... so I don't have to use the land value that's published on the county's website?  Using the percentage of purchase, the sales price of the land comes out about $2K higher than what the county published.  Is this allowable?  Thanks again!

[WendyN2]

Yes, this is allowable. The County Sites state these more for "valuation" purposes for real estate tax calculations for themselves, and these values as you can see are not always on the mark, so to speak. More often, they can be quite a percentage off (higher or lower)! Looks like you are on the right track!