Sale of long term residence/short term rental - Where to enter, Capital Gains, Depreciation, fair market values, etc?

[jsdrummer1]

There's more than one place to enter the sale of a home, and I'm confused where to add mine based on my situation. I also don't understand how to calculate/deal with depreciation, and fair market values which TurboTax asks me about in confusing ways.

I bought the house 2/20/2003. It was my primary residence until 7/4/2020 when I moved into a new home. I used it as a second home for when I needed to stay in town from time to time until 3/16/2021 when I rented it. I then sold it and closed on 2/16/2022.

Any advice on where to put what and how to calculate what in TurboTax would be greatly appreciated.

[leeloo]

If it was rented in 2022, handle everything through the rental section. You will do what you normally do to report rent, but you will continue on to the sale portion.  Read each screen carefully tor reporting information about the sale. 

There is also a section for the personal home exclusion.  The capital gain and depreciation recapture will be calculated for you. 

[ShirlynW]

@ShirlynW 

[Edit02/08/2023I11:47 AM PST]

[leeloo]

The rule says that you must have used your home as your primary home for 2 out of 5 years prior to the date of sale. It doesn't matter that it was converted to rental at the time of the sale. It is both. The rental time period has to have the depreciation recaptured. The personal home portion may be entitled to the exclusion.  All the qualifications must be met.

[JohnB5677]

leeloo is giving good advice.  Handle the rental and the sale on your Schedule E for rental income.

This is under:

1. Wages & Income
2. Scroll to Rentals, Royalties, and Farm
3. Select Rental Properties and Royalties (Sch E)
4. Follow the interview.

Then go to:

1. Wages & Income
2. Scroll to Less Common Income
3. Select Sale of Home (gain or loss)

Take advantage if the (?) that you have along the way to help guide you.

Other examples for when you need to report your home sale can be found here IRS Publication 523, Selling Your Home
 

@jsdrummer1 

[Carl]

Determining where to report the sale is the easy part.

If the last occupant to vacate the property prior to the sale was a paying tenant, or if there was a paying tenant occupying the property at the time of the sale, then the below guidance applies.

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  2021". Select it. After you select the "I sold or otherwise disposed of this property in 2021" 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 if it's zero. Then you MUST work through the "Sale of Property/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 on some assets. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1 on some assets.

Basically, when working through an asset you select the option for "I stopped using this asset in 2021" 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.

[msloss]

I have a similar situation, but with more complications for which I have failed to find any answers.  I sold a short-term rental home this year that was also used for personal use every year, but never used as a primary home.   I know I am not entitled to any exclusion of capital gains, but I can't find any guidance on the specifics of allocating and reporting the business and personal gains in Pub 523 or any other reference.  I have gotten as far as figuring out that I need to manually complete the "enterable 4797 form" since the program can't handle this situation.  This also requires manually calculating the business use gains for the building and land separately, but no instructions anywhere on that and allocating the business and personal use. 

To make it more interesting, I had a new roof put on about 6 months before the sale, and I purchased a new golf cart about the same time that also conveyed with the property as part of the sale.  Therefore, these are reported in a different section as short-term gains.  I have read conflicting guidance on this site whether I can allocate the sale price of the home to take losses on the roof and golf cart,  They are listed as separate assets associated with the home and having their own depreciation.

Any expert help with this situation would be appreciated!

[Hal_Al]

- I would use a workaround, in TurboTax (TT).

In TurboTax (TT), enter at:

- Federal Taxes tab

 - Wages & Income

Scroll down to:

-Business Items

     - Sale of Business Property

Don't try to separate the various assets (house, land, roof).  Add all the cost bases together and enter one number, as your.  Enter the total sales price. Your personal use is irrelevant, at this point.   You will be asked to enter the total depreciation that you actually claimed over the years. 

If you know there was a loss on the golf cart, then don't enter it at all (exclude it from the sale price and cost basis).  A loss on the sale of a personal use asset is not allowed (it's not deductible). 

[msloss]

There are several problems with those suggestions.  The assets (home, roof, and golf cart) have had depreciation and linked with the Schedule E rental income and expenses for past years.  I feel I have to resolve the sale of those assets through the rental income section, not as business income.  Also the golf cart was used 95% by renters, only 5% personal use.  Other posts have stated have suggested rental furnishings, which the cart is categorized as, can be reported as zero sale price and take the short-term loss.  

I think have figured out how to report everything by going through the asset sales in TT and reporting each asset's business profit through a spreadsheet I created to individually track the adjusted basis, selling price, and selling expenses for the building, land, roof, and golf cart .  I broke down the personal use for each year I have owned it and applied the average of 94%.  That way TT handled the completion of the right forms using the numbers in my spreadsheet as long as I said No to special handling for various personal usage every year.  I then created an entry in the Investment Income section for the balance of gain (6%) on the sale.  If this is all acceptable to IRS rules, I just may need to explain somewhere how it all reconciles with the 1099-S when I get it for the sale.

[Carl]

There are some things that due to programming limitations beyond the control of the programmers, just can't be done with TurboTax. For example, in some cases when reporting the sale of rental property that has multiple assets listed in the Assets/Depreciation section, if you show a loss on some assets while showing a gain on others, chances are fairly high your taxes will be figured incorrectly, and the program will "NOT" catch it on the final review. That's because it's looking for mathematical/calculation errors, and not loss/gain errors. You should cost things out so that you show a loss or a gain on everything the same.

[Hal_Al]

You can't claim a loss on the roof and golf cart, since they were included in the sale price of the house.  Just add the cost basis of the two items to the overall cost basis.  Add any depreciation taken, on the two items,  to the overall depreciation (make just one entry for total depreciation claimed).  Personal use was accounted for, in the past, when you calculated expenses and depreciation.