Sale of Property

[duvallhm]

We purchased a home in 2010 to be used as a rental.  Our daughter fell on tough times, moved in to the house and never paid rent.  The fair rental value did not exceed the annual gift exclusion. We did not take deductions on this home, and it was never shown on schedule E.  We stored trailers and equipment on the property that we used for our business.  Our daughter moved out in 2018.  We invested in improvements so the home could be sold.  It sold in 2019.  The price we received was $30,000 less than our cost basis.  We did receive a 1099 S from the sale.  How and where do we report the sale ?  Thank you for any help you can give us !

[Anonymous]

IRS rules say, when you convert personal use property to business use (this would be in 2018 when your daughter moved out), the value assigned to the property for depreciation purposes is:

The LESSER of...

the adjusted basis of the property,

or its fair market value
...on the date of conversion.

The adjusted basis of the property you purchased for personal use is generally what you originally paid for the property on the date of purchase. 

[duvallhm]

Thank you.  So do we take the adjusted basis, and add the dollar value of improvements made after our daughter moved out to come up with our cost basis ?  Where do we report the conversion from personal use to business use so that we can then report the sale of the business use property?  

[Critter]

According to your post you did not convert it to business use ... you used it for family (personally) and then took time to fix it up and then sold it.

Your basis is the original purchase price + cost to purchase + improvements  (fixes) + cost of sale.

Sales price - basis = profit or loss  reported on the Sch D. 

A second home is a personal use capital asset. A gain on the sale is reportable income, but a loss is NOT deductible. You may receive IRS Form 1099-S Proceeds from Real Estate Transactions for the sale of your  home.

To enter this sale of a second home in TurboTax Online or Desktop, please follow these steps:

1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
3. Next click on “I’ll choose what I work on” (jump to full list)
4. Scroll down the screen until to come to the section “Investment Income”
5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section)
6. The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
8. Choose type of investment you sold - select Second Home

[duvallhm]

Thank you.  We have had a second home at the beach for over 20 years, and deduct mortgage interest and taxes paid on it.  How many second homes can we have?  Can we also call the home that our daughter lived in our second home ?  Does the fact that we used it for business storage of tools and trailers make it business use ?  After we sold it, we are renting space elsewhere for storage of these items.

[Carl]

We purchased a home in 2010 to be used as a rental.

Since it was never rented out, I don't see any business use here for anything. You simply report the sale of what is essentially a 2nd home.  It gets reported under the Personal Income tab, Investments section, Stocks, Bonds, Mutual Funds, Other.

[Critter]

To report any of that sale as a "business" use property the business would have had to pay you rent for the use of the yard which had to be reported on the Sch E on the past tax years which you did not do.  So all you have is a non deductible personal use property sale. 

[duvallhm]

Thank you

[MarkATW]

Similar situation.  How did you handle the 1099S proceeds?

[PattiF]

If you have a 1099-S that reports the sale of a second home, you would need to enter it in the investment section of TurboTax. Here is a link for information to enter this sale.

The amount shown on the 1099-S is the proceeds. The basis includes the cost of the property when purchased, some expenses from the settlement statement, any improvements that you made such as a new roof or major renovation, and expenses of the sale that are listed on the settlement statement.

Settlement or closing costs.

If you bought your home, you probably paid settlement or closing costs in addition to the contract price. These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. If you built your home, you probably paid these costs when you bought the land or settled on your mortgage.

The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. You deduct them in the year you buy your home if you itemize your deductions. You can add certain other settlement or closing costs to the basis of your home.

Items added to basis.

You can include in your basis the settlement fees and closing costs you paid for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.

The following are some of the settlement fees and closing costs that you can include in the original basis of your home.

Abstract fees (abstract of title fees).

Charges for installing utility services.

Legal fees (including fees for the title search and preparation of the sales contract and deed).

Recording fees.

Surveys.

Transfer or stamp taxes.

Owner's title insurance.

Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions.

@MarkATW