I sold a rental property in 2020. I had a LOT of repairs AND upgrades before selling. Are any of those tax deductable? If so, where does the sale AND deductions go?

[takabanana]

In ADDITION, the property was sold in December 2020, but I did a 1031 Exchange and the replacement property was purchased with a 1031 in 2021 (February).  How is that reported in TT?

[DianeW777]

You depreciate property you received in a like kind exchange (Section 1031), as though you never gave up the original property.  You use the same adjusted basis as the property given up. If you paid money in addition to the property given up then you would depreciate the additional cost over the same recovery period.

• Where do you enter a like-kind  or Section 1031 exchange?
• IRS Fact Sheet for Section 1031 Exchange
• IRS Instructions for Form 8824

When you have improvements in the same year the property is traded in a Section 1031 exchange, add the capital improvements as an additional asset beginning on the date the new property was received. Include in that total cost of the new asset, any additional cash paid on the exchange, as well as any capital improvements on the property received. 

Set up a new asset and begin depreciation in 2020 as residential rental property using 27.5 year recovery period (depreciation method).

[LB641]

Perhaps you can help with understanding the "sale" of assets, when selling the rental home. Assets include the home itself, the roof, appliances, fencing, etc. In reporting the sale, I need to report the "sale" of the assets too. Most sale for at least $1.00. These assets in some cases are 10 - 12 years old. Do I enter the original cost of these items, + $1?  Trying to wrap my head around how the IR S, or anyone else, including the buyer, would believe that I could sell these items/assets, at full price (original cost) back 10+ years ago. Then add a $1.  Thanks - Just want to enter the data correctly, and stay off the IR S-radar.    Thanks

[MarilynG1]

If you did not originally enter these assets as depreciable items for your Rental Property, you don't need to enter them as part of the sale now.

Perhaps you expensed the items when the costs were originally incurred?

If you have been depreciating these items, then you need to report them as sold also, along with the property.

You can take a reasonable % of the Sales Price to apply as the sale price of each asset.  

Some assets may be fully depreciated, depending on the type of asset. In that case, you may have a gain on the sale of that asset. 

For example, if you were depreciating a 5K roof and you sold the property for 200K, you could allocate 5% of the total Sales Price as the roof sale price. 

Click this link for more info Managing Business Assets. 

Here's some helpful info on Depreciation. 

[LB641]

Thank you,  This area that others and I are talking about (the sale of a rental property after years of reporting with TTX). We need to get through this, and we will be done. The cost basis of the home (minus the "land") is already entered as an asset.  We report the sale and the sale price in the program after indicating that the property was sold in 2021.  That sale amount would be reduced by the sum total of various assets that we do not dispose of (another how to question we have asked for guidance on)? As to the remaining assets like the roof and AC units. They already have a cost basis entered. You are saying that TTX requires us to add at least $1 to that original price already in as the asset, and use that number as the "sale price", not just 1$? but the total of $1 and the original purchase price of the asset? And then that number would be subtracted from the house sale sum total (what the house was sold for). And somehow figure out the land vs structure value. This is where TTX isn't making this easy for us non-tax accountants.  This is where some step by step would help, which gets us all back to our original questions. Simply, how do we report the sale of a rental, and get through it correctly? Be nice if a TTX employee would weigh, or we could get some step by step guidance. We can do it, just guide us and point us in the right direction. We don't want to shoot ourselves in the foot, but we also don't need to stir us the IR s.  Also, how do we dispose of an asset prior to our sale/closing. STEPS.   And last, do we have to do this with all assets. Including those still be depreciated and those that are fully depreciated. This all seems to be a complicated process in selling a vacation rental. Any step by step guidance would help. I see you are also an employee. I purchased, as in previous years, TTX PREMIUM for 2021. CD version on the computer. How do I get help doing the taxes, and a final review as they offer in LIVE? Is it extra, or does it come with TTX premier? If extra, how do we obtain the assistance as we do our taxes from home, on our downloaded version? Since we already have the data in the TTx program? Thank you

[RobertB4444]

Steps for sale of a vacation/second home.

Here is a link to finding a TurboTax expert.

[LB641]

appreciate the reply, unfortunately it did not answer or address my specific questions I detailed. I am one of several trying to get these answers, and looking everywhere hoping someone has the answers or guidance. Also, I am not using LIVE. I am using the CD / Downloaded version of PREMIER on my computer. I am not asking how to get help in LIVE.

Please review my questions above.

Thank you

[LeonardS]

In general, a repair is something that you would do to maintain the rental property at a basic level and would be deducted as an expense on Schedule E.

If your upgrades before selling are capital improvements the cost of the improvements will be added to the basis of the rental property.

 A capital improvement is something that actually adds to the value of the home or increases its usefulness.  Some examples of capital improvements are:

• Remodels and room additions (including decks and porches)
• New or upgraded landscaping, irrigation, sprinkler system
• Hardscape such as pavement, block or retaining wall, patio
• Fencing
• Swimming pool, spa
• Storm windows, doors
• New roof
• Central vacuum or security system
• Upgraded wiring, plumbing, ductwork
• Central heating, AC, humidifier
• New furnace, water heater
• Filtration, soft-water, or septic system
• Built-in appliances
• New flooring or wall-to-wall carpeting
• Upgraded insulation
• Satellite dish

@LB641

[LB641]

Not sure who that answer was for. It was not my questions.

Thank you,  This area that others and I are talking about (the sale of a rental property after years of reporting with TTX). We need to get through this, and we will be done. The cost basis of the home (minus the "land") is already entered as an asset.  We report the sale and the sale price in the program after indicating that the property was sold in 2021.  That sale amount would be reduced by the sum total of various assets that we do not dispose of (another how to question we have asked for guidance on)? As to the remaining assets like the roof and AC units. They already have a cost basis entered. You are saying that TTX requires us to add at least $1 to that original price already in as the asset, and use that number as the "sale price", not just 1$? but the total of $1 and the original purchase price of the asset? And then that number would be subtracted from the house sale sum total (what the house was sold for). And somehow figure out the land vs structure value. This is where TTX isn't making this easy for us non-tax accountants.  This is where some step by step would help, which gets us all back to our original questions. Simply, how do we report the sale of a rental, and get through it correctly? Be nice if a TTX employee would weigh, or we could get some step by step guidance. We can do it, just guide us and point us in the right direction. We don't want to shoot ourselves in the foot, but we also don't need to stir us the IR s.  Also, how do we dispose of an asset prior to our sale/closing. STEPS.   And last, do we have to do this with all assets. Including those still be depreciated and those that are fully depreciated. This all seems to be a complicated process in selling a vacation rental. Any step by step guidance would help. I see you are also an employee. I purchased, as in previous years, TTX PREMIUM for 2021. CD version of PREMIER on the computer. How do I get help doing the taxes, and a final review as they offer in LIVE, FOR PREMIER? Is it extra, or does it come with TTX premier? If extra, how do we obtain the assistance as we do our taxes from home, on our downloaded version? Since we already have the data in the TTx program? Thank you

[AmyC]

The house sale uses the sale price while the other items need to be marked as sold for $0. The point is to get the remainder of the money spent on those assets subtracted onto your tax return.  Follow these steps:

1. Return to your rental
2. Go to depreciation section
3. As you go through the asset summary,
4. under Tell Us More, mark that it was sold, retired, stolen, destroyed, etc
5. enter the date you stopped using it for rental purpose
6. continue
7. confirm depreciation
8. special handling, select no
9. sales information
10. enter 0 for sale price

Do this for every asset not fully depreciated except the house since the house gets the actual sales price and sale.

You can upload and switch to a Live Expert doing your return or just get help along the way. Of course, we in Community are still here to help as well.

See here for help to upload.

@LB641

[LB641]

Thank you.....   Your advise contradicts what others have said, and that's why we layman uses get confused.

I have assets that have been fully depreciated, and those still being depreciated. Vacation rental put in service in 2009, and sold in 2021. Along the way we have a roof in 2010, and an AC unit around 2013. I have been told that I need to add at least $1 to the original cost, and use that number as the "sale price" for each asset? ( the way it has to be does because of TTx programing). Is that true? You say use $0 as a sale price. So either I use $7,001 as a sale price, or as you suggest, $0.  And do I do this for all assets (fully depreciated, and still being depreciated)? This is where our confusion set in, as all we want to do is enter the date properly, so we do not run into trouble with the IR s.  All I want to do is to get through the sale of a vacation rental (2009 - 2021) with assets that have been disposed of, and some, still in use, that are fully depreciated, and some still being depreciated.  Thanks

[PatriciaV]

@LB641

You are correct that interpreting IRS rules and recording transactions in TurboTax can be a challenge. In some instances, opinions based on prior experiences may conflict and create more confusion. Let's try to simplify things. Please provide more information if these are not the facts for your situation.

Your vacation rental consisted of:

• Rental Property, not fully depreciated
• Improvements, fully depreciated (or not)
• Other Assets, some fully depreciated, perhaps others that are not

Rental Property was sold in 2021, along with some of the related assets. Property, improvements, and assets were reported for the Rental Property in TurboTax for the prior tax year.

First step is to indicate under the Property Profile that you sold the property in 2021 ("Do Any of These Situations Apply to This Property?")

Now under "Sale of Property/Depreciation," edit the main Residential Rental Property asset and indicate that the item was sold, retired, etc. ("Tell Us More About This Rental Asset") and enter the date of the sale.

Before you continue, allocate the sales proceeds and selling expenses to all assets that sold at the same time (building, improvements, other assets), based on the ending asset balance after accumulated depreciation and current depreciation. You may wish to print the Depreciation Report to help with these calculations (under Forms >> Form 4562 (Depr Report).

Example:

Total Assets, net of depreciation (prior+current) = $200,000

• House = 150,000 (75%: 150/200)
• Land (no depreciation) = 10,000 (5%: 10/200)
• Roof = 20,000 (10%: 20/200)
• Assets = 20,000 (10%: 20/200)
• Assets (fully depreciated) = 0

Sales proceeds ($450,000), net of selling expenses ($50,000) = $400,000

• Sales price of house = 300,000 (400 x 75%)
• Sales price of land = 20,000 (400 x 5%)
• Sales price of roof = 40,000 (400 x 10%)
• Sales price of assets = 40,000 (400 x 10%)
• Sales price of fully depreciated assets = 0*

Perform these calculations for your sales price and selling expenses, using the same percentages you calculate for both.

      *Selling fully depreciated assets for zero dollars is unlikely to create problems as long as the depreciation report shows the current basis of the asset is also zero.

Use your calculated sales price & selling expenses to complete the "Sales Information" page for the Rental Property (Home).

Edit all other assets for this Rental Property, indicating that they were sold and entering the sales prices & selling expenses you calculated.

For those assets that were not sold, be sure to answer "Yes" for Special Handling Required. This assumes those unsold assets were converted to personal use, and results in no gain or loss for the disposition.

Finally, if you sold some assets before or after the main sale, enter the individual sales information for each asset rather than allocating the main sales price to those assets.

Be sure you continue through the interview for each asset until you return to the Property Asset page for this Rental Property. Then click Done.

[LB641]

@PatriciaV

Hello @PatriciaV 

Thank you for the reply. I printed out Form 4562 for Tax year 2021. Looks like all assets have a Current Depreciation of "0" - except the house itself, and 4 assets which frankly were removed as bad or dead, prior to the sale. How do I handle depreciation recapture and what should I do with the assets having a current depreciation of "0"? I have read where even they should be sold? If so at what price? Their original cost at date of inservice plus $1? As to the 4 assets that were removed, tossed, and or dead, prior to the sale, how are those entered? Please see attached copy of the data in question. Thank you @PatriciaV 

[ThomasM125]

All of the depreciation you have deducted on the assets will be "recaptured" to the extent you have a gain on the sale. By this, it means your gain will be taxed as ordinary income equal to the total of all of the depreciation deducted during the time you rented the property. You need to record the sale of the assets to accomplish this, that is why you need to go through each asset and report them being sold. You can report the sale amount as $0, accept for the house for which you enter the sale price, less the sale proceeds allocated to the land, which you report separately. 

The assets that were disposed of you need to report them as being sold for $0 using the date they became worthless.

[LB641]

 @PatriciaV 

@ThomasM125 

Thank you for the reply. This is where we have confusion. We want to learn, and we want to enter the sale and recapture correctly. We have been told to enter (as the sold price for each asset) $1. We have been told it is ok to enter $0 as the sale price. We have also been advised to enter at least $1 over the original cost, as the sale price. You seem to be of the opinion that it is recommended to enter $0. Please, we want to understand, and just want to do it correctly, as TTx in this area as we complete it, offers no guidance. As you can see by the attached 2021 sheet, most all have a $0 value now. So we can do our recapture by adding $0 as the sale price, across all assets that have been fully depreciated? They still have to be sold, and at $0. As to the items that we disposed of prior to the sale (fence, trees, vegetation), I thought we disposed of them using SPECIAL handling, and indicate that they were disposed of. If not, and we have to indicate them as part of the sale of the rental, since that still have a value, do we add $1 to their current value, and indicate, sold with the sale date? Just need to get through this section, and we should be good to go, once TTx gets their looping issues corrected.  Thanks to all. See attached.

 @PatriciaV 

@ThomasM125