It appears that I would need to mark every asset associated with the rental property as sold, not just the residence itself. In this way, any depreciation taken on these additional assets would be accounted for, is this correct?
yes, you're correct. I've provided general guidance below to help you report things right so that taxation of depreciation recapture is done properly.
Would I reduce the property sale fees by the amount of the creditinstead?
That's basically a refund of the property taxes you paid. The refunded amount is reimbursement for the period of time from the closing date of the sale, to when the next tax payment is due. (Which they buyer will deal with). So if you're reporting property tax payment on the tax return, just reduce the amount of your payment by the amount of the credit.
I don't have a place to enter 1099-S info.
The 1099-S is informational only. You don't enter it anywhere. Besides, the 1099-S commonly shows the amount you were paid at the closing, and may not include the payoff amount (which is taxable income to you) of any existing mortgage you may have had on the property. But the fact you received a 1099-S means that you are required to report this sale no matter what. So even if you qualify for the "2 of last 5" capital gains tax exclusion, you still have to report this sale on your tax return.
Now here's that guidance I mentioned above, about entering your sale into the TurboTax program so depreciation is correctly recaptured and taxed at the lower, ordinary income tax rate, and not the capital gains tax rate.
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.
