Sale of rental property

[Garyd1]

I sold a rental property in 2019. I have been using turbotax for many years while I owned this rental property, but somehow I neglected to enter in the cost basis of the property.  I know what my cost basis was at the time of purchase but I do not know how to enter it in to turbotax now so that it can make the correct calculations . Can I just enter in the cost basis when I enter in the sale of the property into turbotax 2019?

[Carl]

If you've used TurboTax to report your rental income/expenses in past years and have done so correctly, the program already has your cost basis. Simply follow the guidance below to report the 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  2018". Select it. After you select the "I sold or otherwise disposed of this property in 2018" 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 2017" 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.

[Critter]

@Garyd1    You said "  but somehow I neglected to enter in the cost basis of the property" ...

Did you FAIL to depreciate the property all these years ?  Fail to even enter the property as an asset ?  If so you have BIG trouble  and you MUST seek a professional tax preparer to complete the 2019 return and file the form 3115 to fix this HUGH error. 

[Garyd1]

As stated in my original post, I somehow did not input any cost basis of the rental property into turbotax. It thus appears the program has no way of calculating any gain or loss as a result of the sale, because there is no cost basis for turbotax to use. How do I correct this mistake? I know what my original cost basis is. I just don't know how to "edit" this particular asset so that it will now show a cost basis.

[Critter]

I am confused ... if you have the property entered in the asset section of the Sch E section then the cost basis is already in the program ... why do you need to make any changes ?   If you follow @Carl 's instructions you should be only selling off the property in the Asset section of the Sch E ... not later in business assets sold. 

Is the asset (and any improvements/appliances/etc)  not listed on the asset depreciation worksheet ?   Did you ever enter them at all ?  

[ghost]

Cost basis (when purchased) may not be equal to the cost basis used for depreciation. I have this problem and must override to get correct capital gain. $210k purchased vs. $175k when rental period began.

[Critter]

It is not known what the Original Poster did yet ... but when you place a property into service you use the cost basis which is usually the original cost + cost of purchase + improvements.   Thus the required cost basis is already in the program. 

If you convert the property from personal to rental you use the  lesser of the FMV at the date placed in service or the adjusted cost basis. If the FMV was less than the adjusted cost basis then that is what you should be using per the IRS regs. 

[ghost]

@Critter  Right. I have to override $175k because program uses my $175k depreciation basis as cost basis (which is $210k). This has been discussed many times in previous forum. TT used to ask for cost basis at sale but now uses depreciation amount.

[Critter]

But those items should be the same figure if you entered it correctly in the beginning UNLESS you used the wrong amount  OR  the FMV was actually LOWER than the cost basis when you placed it in service (most unusual) ... so if either of these are true then overrides in the FORMS mode is needed.  

[Carl]

TT used to ask for cost basis at sale but now uses depreciation amount.

Not "quite" an accurate statement.

If you purchased the property and immediately made it a rental, then your depreciation basis is based on the cost basis - which is what you paid for it. So you report the sale in the rentals section and the program takes care of everything for you, including the depreciation recapture.

However, lets say you purchased the property in 2005 as an example, for $200,000. Then you placed it in service as a rental in 2009 when the housing market crashed. At that time the FMV when placed in service was lower than what you paid for it. Since you depreciate based on the *LESSER* of it's FMV when placed in service, or what you paid for it, that means you can **NOT** report the sale in the rentals section. You *HAVE* to report it in the Sale of Business Property section. In "that" section you will be asked for the cost basis. So you know what you paid for the property. All you need to do is look in the rental "Assets/Depreciation" section to get all the depreciation you've already taken. You'll be asked for that in the Sale of Business Property section.

The correct amount of deprecation taken requires *you* to do some math. You have to add togehter the amount of prior year's depreciation taken, and the current year deprecation on *ALL* assets listed to get the correct total amount of all depreciation taken on the property.

So I'm not understanding how you're having a hard time getting the original cost basis on the property You paid for it, and you have the HUD-1 closing statement which you received at the closing when you purchased the property. Additionally, what you paid for the property is public information and will be listed on your county's "real property ownership" web site.

[Garyd1]

The asset is listed. I looked at the worksheet and all incomes and expenses have been reported each and every year.  However, there is no depreciation noted on the worksheet, and no cost basis noted on the worksheet.

[Critter]

ok ... that makes no sense ... please call TT support to discuss this in real time ...

Use this website to contact TurboTax support for this situation:

https://support.turbotax.intuit.com/contact/

[Critter]

Wait a minute ... do you mean you looked at the Sch E line 18 and it is blank ?  And you do NOT have a depreciation worksheet at all in the return file ?   If so you  MUST seek local professional assistance ASAP to cure this error.  

[Anonymous]

if you never entered the cost there could not have been a depreciation deduction unless you did a manual override.   if you haven't taken depreciation, you need to see a tax pro to fix the situation because the tax law says you compute the gain on the depreciated basis even if you never deducted the depreciation and you also pay tax on the depreciation recapture.  you can not claim all the depreciation in the year sold.   

in forms mode go to schedule E WORKSHEET  for the rental property and there will be a LINE saying QUICKZOOM TO asset entry worksheet.  click on the quickzoom icon