Rental property sale and capital gains taxes - doubled

[Joy_G55]

I sold a rental property in 2021 and bought it in 2007.  I have followed the prompts and entered sale info from 1099-S in the section for "I sold this property" under rental income.  And then also trying to go thru the asset section for the sale.  But it seems I am entering in the sales price in both places and turbo tax is saying I owe a ridiculous amount of federal and state taxes.  Do you enter the sales price in both places? And how do I accurately capture the cost basis?  Bought it for $150,000, but made improvements around 60,000 (not all were put under assets for depreciation).  Also, not finding answers of how to accurately put in land versus building costs.  Can you leave those spaces blank?  I went thru return and at first did not put anything in those spots an the audit check said everything looked good and minimal risk for return.    

[KrisD15]

Yes

First enter the 2021 information relating to the rental, such as 2021 income and expenses. Report that it was sold but you do not enter the details of the sale here.

Revisit the rental section click edit for the property and scroll down to Sale of Property / Depreciation continue to enter the details of the sale in this section.

You don't say what the property sold for, but you should be aware that you need to recapture depreciation when selling a business asset. Additionally, the IRS is not concerned with whether you properly claimed the depreciation or not, it still needs to be recaptured. 

If you first reported the rental with a basis of 150,000 it would have deprecated over half since rentals have a useful life of 27.5 years. 

Land does not depreciate so you should have allocated part of the 150,000 to land. 

Lets say it was 140,000 building and 10,000 land. 

That would give you about 71,000 accumulated depreciation. That needs to be recaptured, so right off if you sold at or above the original cost of 150,000, 71,000 will be ordinary income on Schedule 1. 

Anything over 150,000 would be capital gain. 

The 60,000 in improvements would have been added to the basis if done before it was placed in service, or listed separately if made afterward. 

If before, the basis would be 200,000 for the building and 10,000 for the land, so depreciation recapture would 100,000 and capital gain would be anything over 210,000. 

If after, you first allocate part of the sales proceeds to the remaining value of the assets, then the remaining sale proceeds to the land and building. 

In your case, you can't just allocate 60,000 to the improvements because they should have been depreciated as well. 

If you don't enter the land amount, the program most likely will allocate zero for the land sale, which would generate a loss, but that loss would be offset by the additional gain on the building. 

[krissie36]

Totally confused.   Bought rental in 2004, for $75,000.  sold 2021 for $85,000.  Over the years spent well over $10,000 in upgrades.  Lost thousands of dollars from bad renters.  Is $11,000 due taxes right?   Do I go back to 2004, include all cost of purchase, also add all depreciations since?

[Vanessa A]

If you paid $75,000 and paid $10,000 in upgrades, then sold for $85,000, $11,000 may be slightly high, but probably not that high depending on your other income.  The loss from renters is not deductible. 

However, you have no gain on the sale.  You would need to recapture depreciation which would be about $2,727 per year for 17 years which would be $46,363 that you would have recaptured and are being taxed at your ordinary income tax rate. 

You may want to double check a few things, such as did you enter all of your selling expenses and did you enter your cost basis?  Is the sale showing as a loss?  If so, then your taxes due are likely coming from the depreciation recapture. 

[Joy_G55]

Where I enter that I sold the property, the program is asking to put in the sales price, cost basis and fees for the sale of the property.  Do I just leave these blank and only put in the sales details in the depreciation section ?  Under the wages and income section - I received a 1099-S and turbo tax says I should enter this information under this section.   Also, where do you get the amount of $71,000 from?  Do I need to add up the depreciation amounts from each year since I have had the property and allocated the rental as an asset? 

[ThomasM125]

You should just enter the sale amount less the selling fees when you report the sale of the assets. The program should have the correct accumulated depreciation amount and it should show when you report the asset sale. If not, you would need to add up the depreciation for the asset you are selling as is allowed in each year you rented the property.

If the building costs $140,000 then the annual depreciation would be that number divided by 27.5. If you multiply the annual depreciation by the number of years the property was rented, you get about $71,000 in accumulated depreciation.