I bought a rental property with my gf in 2017. We split everything down the middle. We sold it in 2020. I cannot see a way in to split the capital gains?

[vosu]

I only need to pay gains on half the net proceeds, and she can pay the other half. I can put in the 50% for rental income and expenses, no problem, just not for the sale?

[DavidD66]

You owned half a house.  You should have set up the rental using one half of all amounts.  One option to get things corrected would be to file amended returns for 2017, 2018, and 2019.  Then you could properly report the sale and gain on your 2020 tax return.  Another option would be to file Form 3115, Application for Change in Accounting Method.  This would allow you make the necessary corrections retroactively.  TurboTax does not support Form 3115, so you would not be able to file using TurboTax and file Form 3115.  I recommend you seek the help of a local tax professional in your area. 

[Carl]

We split everything down the middle.

Are you sure you split 'everything" down the middle?  When you entered the rental property into TurboTax in 2017, did each of you enter on your individual tax returns, one half of the cost basis? Are both of your names on the mortgage? Are both of your names on the title/deed to the property?

If you truly split "everything" down the middle, then this should not be an issue.

[vosu]

I am not sure what she did, but I did not enter half of the cost basis. We did claim half of the income, expenses, taxes, fees, etc. So I guess my mistake was the cost basis, but I would have thought TurboTax would have walked me through that since I indicated I owned half of the property. Yes, both names on the mortgage and the title. So it sounds like I won't be using TurboTax this year if I need to file a 3115 or amend previous year's returns. Thanks for your feedback.

[vosu]

Hi, I thought I did set it up when I indicated that I owned 50% of the property in TurboTax. I guess the app does not figure out half of the cost basis, which I would have expected. What a pain. Does the app allow me to amend the previous years or do I need to go outside the app for that as well? Thanks.

[Irene2805]

The current version of TurboTax Online is only for 2020 returns.  If you need to amend previous years' returns you will have to use the CD/Download version of TurboTax.  Please see the following TurboTax Help article for instructions:  How to amend (change or correct) a return you already filed

In your 2020 return you will have to enter that the rental property was sold, as well as any assets related to the property that you may have entered separately (for example, new roof, appliances, improvements).

To do this please follow these steps:

1. Click on Federal  > Wages & Income 
2. In the Rentals, Royalties, and Farm section click on the Start/Revisit box next to Rental Properties and Royalties (Sch E). 
3. On the Income from Rentals or Royalty Property You Own  screen, click Yes.
4. If you have already entered information about your rental, you will come to Your Rental and Royalty Summary screen.  Click on the Edit box next to the property. 
5. On the screen, Here's [XX]'s rental property info, click the Edit box next to Rental property info.
6. On  the screen Review your rental property info, in the General Info section, click Edit below Situations.
7. On the screen, Tell us about your situation this yearclick the box Sold or disposed of the property .
8. When you come to the screen, Review Your [XX] Rental Summary click the Start/Update box next to Sale of Property/Depreciation.  
9. If you have assets entered already, on the screen, Do you want to go directly to your asset summary? mark the Yes radio button and click Continue.
10. Click Edit next to the property.
11. If you haven't yet entered any assets, continue through the screens to enter the house.
12. On the screen, Tell Us More About This Rental Asset,  mark the box that the item was sold and enter the date of the sale.
13. You will eventually come to a screen to enter the sales information.
14. Continue through the interview, entering the requested information.
15. You will be brought back to Your Property Assets.  If you have other assets related to this property, follow the same procedure with them by clicking on Add an Asset

[vosu]

Thanks, Irene, in your opinion would it be easier to do the 3115 alternate cost form or amend 3 previous years? I would assume there is a cost for the amendments. Quite frankly, the profit on the property was not much, I am not even sure if it is worth going through all this trouble. I could just take the tax hit and be done with it ...

[ThomasM125]

Form 3115 is used for a change in accounting method. It is used when associated with a rental to correct depreciation that was not deducted properly in previous years.

It may be easier to use it once than to amend three years of tax returns. There is no fee for amending a tax return in TurboTax if you have the software for each year, or if you prepared the tax return online with TurboTax.

[Carl]

Just my two cents for consideration.

The 3115 is "NOT" simple by any stretch of one's imagination. If you decide to go that route, I highly encourage you seek professional help. Especially if your state taxes personal income. Doing the 3115 wrong can make things even worse on the financial/tax front, thus making the cost of professional help seem like a pittance in comparison.

[tagteam]

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@ThomasM125 wrote:

Form 3115 is used for a change in accounting method. It is used when associated with a rental to correct depreciation that was not deducted properly in previous years.

It may be easier to use it once than to amend three years of tax returns. 

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There is no choice, actually. If the same impermissible method of determining depreciation was used in two or more consecutively filed tax returns, the only option would be to file Form 3115; amending three years of returns would not be allowed.

See https://www.irs.gov/publications/p946#en_US_2019_publink1000107385

[AmeliesUncle]

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@vosu wrote:

Hi, I thought I did set it up when I indicated that I owned 50% of the property in TurboTax.

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Let's take a step back.  Are you saying you DID enter the property for depreciation, but it now seems like you were actually depreciating 100% of the property?  If so, then ...

If so, Form 3115 does NOT apply.    Using an incorrect Basis for depreciation is a "mathematical or posting error", not "method".  That means Form 3115 does not apply.

Option #1:  Amend your previous returns.  This is the most correct method.  Then correct the Basis on the 2020 return to 50%, and report the sale.  When entering the "prior depreciation", use the amounts you used after amending.

Option #2:  Don't amend and change the asset to 50% of the Basis.  Enter the ACTUAL "prior depreciation" that you claimed (which was too high because you were depreciating 100% of it rather than 50%).  Then go ahead and report the sale.

Again, Option #1 is the most correct method to use, but both options could have similar overall results if your circumstances are very similar across all years.

[vosu]

Hi, yes, it appears I am depreciating 100% instead of half. I am waiting to see what my ex gf's accountant did, but I guess that would not have a lot of impact on my part of the gain. I like option 2, will try to do that. It was a simple mathematical error, I agree. Should not be this complex but ... taxes. Thanks for your input.