Sale of a rental property

[Rick1946]

I sold a rental property that I held for about 5 years.  All the tax filings used Turbo Tax for income, expenses and depreciation each year.  Several questions.

1.  There was no rental income this year. When we finally got the tenant out we have significant expenses to clean and repair the unit.  Should all these expenses be deducted as "expenses" or taken against the sale of the property.

2.  Similarly, are the costs associated with the sale - commissions, closing fees, et al taken against the sale proceeds?

3.  Lastly, since I used TT each year is the prior years depreciation automatically calculated?

[Irene2805]

On the sale of your rental property:

1. The expenses to fix up the property are normally added to the basis of the property, when you are calculating the capital gain on the sale.
2. Closing costs, both on the purchase of the property and when it is sold, are also added to the basis of the property.
3. Yes - TurboTax has tracked the depreciation taken and will automatically calculate the total.

Since the property was a rental and you have prior depreciation, enter the property sale in the Rental Property section.  You will have to apportion the total sales price among the house and any assets that may have been entered separately (for example new roof, appliances, improvements).

To do this in the TurboTax Home & Business, please follow these steps:

1. Click on Business > Continue > I'll choose what I work on.
2. On the screen, Let's gather your business info, click Start/Update 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 (or transferred it from the previous year), you will come to the Rental and Royalty Summary screen.  Click on the Edit box next to the property. 
5. Continue through the screens, entering the requested information.
6. On the screen, Do Any of These Situations Apply to This Property? mark the box that you sold or disposed of the property in 2019.
7. When you come to the screen, Review Your [XX] Rental Summary click the Start/Update box next to Sale of Property/Depreciation. 
8. 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.
9. Click Edit next to the property.
10. If you haven't yet entered any assets, continue through the screens to enter the house.
11. 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.  
12. The next screen allows you to enter or confirm your prior depreciation .
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 Edit on an existing asset [or Add an Asset].

[Rick1946]

Thanks for this but I'm not sure I explained things properly.  The property was rented from Jan to about May but we did not receive any rent.  When we finally got the renter out, we had to spend A LOT of money to get the property cleaned out and repaired so it could be rented again.  Toward the end of this process an individual in the apt complex made an offer to buy the property.  We decided at that time to sell rather than continue to rent.

My thought is that I should charge the fix up as expenses to the rental property even though we had no rental income and only charge the commission, closing costs et al to the sale.

Thanks again,

[MaryK4]

You need to report the improvements as adjustment to basis as Irene2805 indicated above since you sold before renting the property again. 

@Rick1946

[Carl]

The property was rented from Jan to about May but we did not receive any rent.

That's actually irrelevant. The property was still classified as residential rental real estate for the year, up to and including the date you closed on the sale of the property. You'll just report your rental income as ZERO. Any rental expenses incurred are exactly that - rental expenses.

When we finally got the renter out, we had to spend A LOT of money to get the property cleaned out and repaired so it could be rented again. Toward the end of this process an individual in the apt complex made an offer to buy the property. We decided at that time to sell rather than continue to rent.

All expenses incurred after the last renter moved out are more correctly classified as sales expenses. That would include all repairs and cleaning costs. Anything you did that adds value to the property is a property improvement and gets classified as such. More than likely though, I doubt you have anything that would qualify as a property improvement. I do expect you to have quite a bit in sales expenses incurred in what is referred to as "preparing the property for sale."  Since you sold and did not rent it again, it's easier on you to claim sales expenses, as it would be difficult to prove they were rental expenses since another renter did not move in prior to the sale.

Reporting the Sale of Rental Property

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in  2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets.  You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset.  Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically, when working through an asset you select the option for "I stopped using this asset in 2019" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.