What category does a new roof on a rental property fall under? Is it landscaping? I'm not seeing very good examples.

[operaflute]

How very lovely!

[KlugS]

Thank you for answering the root question being asked

[JemB]

I thought the EXACT same as you so thank you for asking this question!

[Anonymous]

Operaflute, your question made perfect sense to me.  I had the exact same question.  Turbotax is unclear in its examples and clicking "residential real estate" DOES make it sound like you are adding in a new building.  Thanks for posting - even though the answer seemed obvious to some, it was not obvious to me either.

[tiggily]

Years ago, I added the new roof to the rental property as an asset.  Now that I sold the rental property, TT is asking what the sales price of the new roof is.  Well, I didn't sell the roof separately from the home.  What do I enter?

[AmyC]

The sales price of the roof and any other assets you are depreciating is zero. Only the home has a sales price. Everything else was included free with the purchase.

@tiggily

[Carl]

The sales price of the roof and any other assets you are depreciating is zero.

Thats wrong. If you make the sales price of other assets zero, then the depreciation on those assets is included in the capital gains, and is taxed at the capital gains tax rate. If you sold the property at a gain, you need to show a gain on every asset that is "at least" $1 more than the cost basis of the asset. That is the only way the depreciation will be correctly recaptured and taxed at the ordinary income tax rate, instead of the capital gains tax rate.

[Carl]

Here's the general guidance on how to correctly report the sale of rental property, in the SCH E section of the program.

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.

[MrFred-]

Champ, Thank you for your detailed description. I have been looking at all different posts for the past hour.  This simple answer that you provided just let me fly right through.

[cbusa]

Hi Carl if you depreciate over 27.5 do you still have to recapture that depreciation eventually if you sell or is the recapture only special bonus depreciation? What about 179 is this recaptured?

[cbusa]

Do you allocate the gain or loss proportionally? If the gross sales price is $300k, $200k is building, $100k is land you allocate the $200k to the various non land assets proportionally based on their origional cost?

[Critter-3]

If this is for estimating the tax liability for the 2022 tax return  AND  you have been depreciating the property correctly all these years then here is a basic blueprint to follow : 

Cost basis =  purchase price + cost to buy + improvements

Adjusted cost basis =  cost basis -  depreciation taken

Sales price - ( cost basis + cost to sell )  =  profit or loss

Profit - depreciation taken = cap gain 

Depreciation is taxed as ordinary income not to exceed 25%.

Cap gain taxed at no more than 20%.

Ok ... a simple example of ratios ...  if you have more assets than the example then you will have more lines.  Remember if you divide a big number into a littler number you get a % ...  thus 5000/100,000 = 5%

       original  cost basis          ratios                  Sales price             cost of sale 

home    80000                   80%                          160,000               8,000

land       15000                   15%                           30,000                 1,500

roof        5000                        5%                           10,000                   500 

totals     100,000                100%                        200,000               10,000

All you need to enter into the program is the % of sales price & % of cost of sale for each asset being sold and you will have to do the math yourself as the program will not do it for you if you have more than one asset (the land & building are considered 2 assets) . 

And if you have NOT been taking depreciation as required  then RUN to a local tax pro when you file this return to get this error fixed correctly so you do not pay more taxes than you are required to do ... the form 3115 you need is not supported in the TT program and it is NOT a DIY project.