Recently sold primary residence, where I rented 50% of the unit. Question about asset cost.

[Anonymous]

Hi,

I bought a 2 bedroom condo about 8 years ago and rented the second bedroom the entire time I lived in it.  I sold it in 2022 and noticed that even though I qualified for the income exclusion my cost basis was really low, which resulted in my gain being much higher.

I was looking at the Asset screen for the Home Cost  and I realized I entered 50% of the Cost since I was renting 50% of the unit.  (Home Cost - $187k so I entered ~$93k as the cost.)    

Now it calculates my gain with the full sale price $250k with a cost basis of $76k  (93k cost - 17k deprecation) instead of the actual cost basis 170k (187k - 17k Dep).  

Either scenario results in me getting the income exclusion for home sale, but should I fix it this year or was the correct thing to do?  Considering that TT isn't calculating the cost basis or gain correctly I am guessing I did it incorrectly.

[leeloo]

Since it was also a rental property, the sale should be entered in that section. You will prorate the space like you have always done. (duplex) Continue through all the screens noting the sale.

Treat this as two separate properties.  On the rental side, you pay capital gains tax on the entire gain, including depreciation recapture.  On the part that used to be a personal residence, you can exclude 250k/500k,

You will be asked in the latter part of the interview if it also was a primary home. 

[Anonymous]

So are you saying I should just go through the Rental Properties and Royalties screen and the Sale of Home screen as if they are seperate items?

When I go to Sale of Home (gain or loss) screens, do I just enter in the $187k cost basis since this is on the personal side? I went through all the screens and I got 1 question that says Depreciation After May 6, 1997, but it says Note: Only report here depreciation that was NOT reported as a seperate business sale. 

It's just a little confusing because the Sale of Home is now showing the right gain on the sale of property, but I didn't encounter any deprecation recapture screens on the Rentals Properties and Royalties screen. It basically just asks me when it was sold and then says the depreciation for 2022 is $X and we will move it to the right form for you. I don't see any other screen and it just moves me on to deductions and credits.


EDIT:  The only time I get a screen that says I have a taxable gain is if I enter in the depreciation on the Depreciation After May 6, 1997 screen 

[ThomasM125]

You do need to enter sale and cost information in separate portions of the program.

In the rental section, you need to enter the portion of the sale income that pertains to the portion of the property you had rented, which is seems was 50% here.  You also need to have entered the cost for the portion rented. TurboTax will calculate the depreciation recapture based on the accumulated depreciation. You do a similar thing for the home sale in that section. 

You may be able to exclude the gain on the home sale portion, but any gain on the rental portion will be taxable, either as capital gain income or ordinary income, based on the cost, sale amount and depreciation allowable on the property.

[Anonymous]

I think I understand why I was little confused. 

When I click on the asset and enter in the Disposition Information I am presented with a screen that says "Special Handling Required?" and it tells me to select if Yes if any of the conditions apply. One of them describes my situations "This asset was a rental, a home office, or a home office improvement within a home." I believe I am correct to click Yes as it is a bedroom in a 2 bedroom condo and it results with me being presented with a screen that says "Depreciation Deduction Amount" and it tells me it will be transfer the an amount to the correct form (I rented it for the first 3 months of 2022).  That is all I am asked to do. I have no other screens or anything else to answer after doing that.

I went back and clicked No on that screen and I think I see all the screens being mentioned above, but those don't seem to apply to be as this rental was within my primary residence

Looking over their documentation since I clicked Yes for special handling I am supposed to enter all that information on the Sale of Home screen.  I went over there and put my adjusted cost basis as $170k (187k cost - 17k dep) as well as entered the $17k depreciation on the Depreciation After May 6, 1997 screen.  This resulted in saying Part of Your Gain is Tax Free and I only have a taxable gain on $17k of the sale. 

Please let me know if any part of this sounds incorrect, but based on the documentation this made the most sense.

[RobertB4444]

Yes, the special handling section was correct and you should be good to go.

@Anonymous