I sold my rental house for $87,600. Per the settlement form, after paying off the mortgage and other costs of $84,946.46, I received a check of $2,653.54. In the Sales Information section I know I have to split between house and land. The beginning information showed total cost of $92,584.00, land cost of $389, and Prior Depreciation of $34,783. The land portion of the total cost is .4%. I split the sales total of $87,600 between house and land using the .4%, then did the same with the $84,946. This is calculating out to be a significant loss. Am I using the correct numbers? I do not have a 1099-S.
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What you received at the closing is irrelevant and does not get entered anywhere on any tax return. What matters is your contracted sales price. Period.
If you will work the sale through the Rental & Royalty Income (SCH E) section of the program, your life will be so much simpler and your sale will be reported correctly.
Your taxable gain on the house is significantly more than the cash you received at the closing, too.
Just use the below guidance to report this 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 ahve 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.
So, I enter the $87,600 under the Sales Price and put nothing in the Land box? What expenses can I deduct then? The cost of this property was $92,584.00 per what shows up in Turbo Tax and I sold it for $87,600. I had to pay a realtor, closing costs and other escrow/settlement charges. Are these what I put into expenses? I am still confused as to what I am reporting. I hate to think I am going to have to take this to H&R after paying for this software.
Here is the way the gain is calculated.
Your sale price is $87,600, less real estate commission, closing costs and other escrow/settlement charges.
Your basis is $92,584 less Prior Depreciation of $34,783.
Your gain is figured as your sale price minus your basis.
The amount of the sale you allocate to land will not affect your gain or loss.
You should report the sale through the Rental & Royalty Income (SCH E) section of the program, as Carl, above, suggested.
Thanks for the instructions. I have calculated and put those figures in. I am putting them into Schedule E under the rental section. Final question - then do I have anything to put into expenses or is it okay just to complete the sales price boxes only?
The explanation above covered all of the key points. You will enter $87,600 as the Total Sale Price. You will then enter Cost of Property Which will be Your Original cost, Improvements made to the property, original purchase closing cost plus final closing cost (this does not include mortgage payoff).
Just to confirm. I put in as Sales $87600. Then for costs I put $92584.00 (original cost) + closing costs of $8,274 (Total of $100858).
Yes. The formula is cost plus closing costs and the sales price is taken directly from the HUD-1 and not altered.
Be sure the depreciation is included. This will reduce your basis and either lessen your loss or create a gain.
So Turbo Tax shows 34,783 in depreciation and I should deduct that from the figure I am putting in as the Expenses or does Turbo Tax take it out already since it is showing that amount?
If you have done your returns with TurboTax over the years and accounted for the depreciation, then it should be calculated for you. You can print your forms and look at Form 4797, page two, line 22 to make sure the proper amount is included. See the screenshot below.
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