Sale of Condo - confusion about how to enter asset sale price business portion

[taxbadlo]

I bought a condo in 2005, converted it 12 years later to a rental property in 2017, and sold it in 2024.  Is the "Business Portion" of the asset sale 100%, or is it the % of time it was a rental from 2017-2024? If it's the latter, it would be a rental for 7 of the 19 years of ownership which is 36.8% business portion.

More data:

11/2005 - condo purchased for 304k

1/2017 - condo rented out - I could have sold at that point in time for around 220k (loss due to housing crash in 2008)

8/2024 - tenant moved out; unit vacant until sale

12/2024 - condo sold for 265k

Condo was sold for a loss compared to what I initially paid. But it seems like turbotax is using the 220k estimate from 2017 when it converted to a rental to calculate a gain on my sale. I'm hoping I can accurately claim the 36.8% business portion as taking a loss on the sale of the property and then paying taxes on a "gain" is brutal. 

[AmyC]

Your correctly entered the lower of FMV or basis for depreciation. The reality for the sale is: your basis of $304k minus depreciation claimed for 7 years, let's just say $54k for illustration purposes for a rough basis of $286k.

The house was a rental for 7 years. It was not your main home in the last 2 out of 5 years. It was pure rental. Sold $265k

Profit is a loss or small gain. $286 k basis minus sale of $265 is a loss of $21k. 

Be sure to go through and dispose of all the assets you have listed. Everything else was sold for zero to go with the house. So, if you were depreciating a refrigerator and roof, that loss adds in as well. 

[taxbadlo]

Thank you for the detailed response. So does that mean I need to put in 100% as a business portion? Can you take a look at the following? I think it's in line with what you are saying but I'm still a little unsure.

When it is done that way my 4797 looks as follows:

Part I, line 2 - gross sales price (d) 90,618; cost or other basis (f) 71,181; gain (g) 19,437

           line 6 gain - 54,628

           line 7 combination gain - 74,065

Part 3, line 20 - gross sales price - 171,882

            line 21 - cost or other basis plus expense of sale - 160,195

            line 22 depreciation - 42,941

            line 23 adjusted basis - 117,254

            line 24 total gain  - 54,628

Bottom line - even though I lost money on this property from when I purchased it, it's considered a gain since it went up in price from it's potential sales value when I first put it up for rent?

[DianeW777]

It depends. This answer assumes there was no land sold with the property and It's not clear if you used fair market value (FMV) for the cost of the condo for depreciation when you set up the asset for depreciation. It's possible so I'm going to give steps that will report the full cost for your sale which is the correct number to use.

In the rental assets use the following information to take each asset out of service without entering sales information in that section.

When you are in the rental activity for 2024, you must select the 'Assets' section, then in each asset you must go to the screen titled 'Tell Us More About This Rental Asset'. 

1. Once you reach this screen for each asset, you must select 'This item was sold, retired, stolen, destroyed, disposed of, converted to personal use....' 
2. Next enter the date you stopped using the asset for rental purposes. And answer 'Yes' you always used this asset 100% of the time for business. (The percentage of use doesn't change until after conversion from rental to personal use.)
3. Select 'Yes' for Special Handling due to 'You converted the asset to 100% personal use'.

You may see some depreciation expense which will be the partial year amount.  For the period of the year it was available for rent, you may have some expenses which are allowed for that open period. Write down the current year depreciation and the total for all prior years for each asset.

Once completed you will use Sale of Business Property to enter the sale using your actual cost of the condo (not the FMV). Assuming there is no land you can enter one sale to include all assets following the steps below. 

Sale of Business Property:

1. Income and Expenses at the top
2. Scroll down to Other Business Situations
   • For TurboTax Desktop: Business Income and Expenses > Less Common Business Situations
3. Select Sale of Business Property
4. Select Sales of business or rental property that you haven't already reported.
5. Answer 'Yes' to Do all of the following apply...?
6. Enter your sales information:
   1. Description of the Property (Machine Type)
   2. Sales Price/Sales Expenses 
   3. Date acquired and date sold
   4. Cost
   5. Depreciation

@taxbadlo