Rental property sale recorded properly?

[vtdrevil]

I need to report the sale of a rental condo in 2020 where FMV at the time we converted it to a rental from personal use was below our initial purchase price, and we used the FMV as the basis for rental depreciation.  Could someone please confirm whether how I have entered it below sounds correct.  The tenants vacated the rental on 10/18/20 and it was empty and just being prepared to sell from that point on.  It sold on 11/30/20.

In the Rental Properties and Royalty section:

Property Profile- I did not check that I sold or disposed of the property during 2020.  On the screen asking if the property was rented for all of 2020, I answered no and provided the exact number of days it was rented (through 10/18/20).

In the Expenses sections, I entered all expenses related to the rental through the last date that it was rented, prorating the expenses like property taxes, mortgage interest, etc. to 10/18/20.

In the Assets/Depreciation section, when asked if I stopped using the asset for business purposes in 2020 I checked yes.  For the Date of Sale or Disposition, I entered 10/19/2020, one day after the renters moved out so that it would calculate 2020 depreciation correctly.  For Date Acquired, I entered the date of the original purchase of the property.  Are these two dates correct?  I wasn’t sure if date acquired should be the date of actual purchase of the property or when it was converted to a rental.

On the Special Handling Required screen, I answered yes. 

In the Business Items Section, I checked Sales of business of rental property that hasn’t already been reported. 

On the Sales of Business or Rental Property Page I entered the info about the property with the date of purchase and sold, total sales price, which is equal to the amount showing as the Gross Proceeds on my 1099-S. 

I totaled up the costs related to preparing the property to sell (including expenses such as property tax and mortgage interest between 10/19/20-11/30/20) as well as sales expenses like real estate commissions and other fees and I added that to our initial purchase price (not the FMV at the time we converted it to a rental) and I entered the total in the Cost of Property (or Tax Basis) Plus Expenses of Sale field.  Is this correct? 

I don't see where to list what these expenses are though- is there someplace that I should be itemizing all of these expenses and costs? 

In the field for Depreciation Taken on this Property, I totaled the prior years' depreciation along with the amount calculated in the rental section for 2020 that will be depreciated in 2020 up until the date the property was vacated and entered it.

Will this generate the correct tax forms for the sale as well as calculate the correct tax amount on the recapture of depreciation and long term capital gains?

Thank you in advance!

[ColeenD3]

1) Since you had rental income and expenses. you should have recorded the sale in the Rental Section. 

On the Sales of Business or Rental Property Page

2) You should have marked that it was sold, when asked. 

I did not check that I sold or disposed of the property during 2020.

3) Property tax and mortgage interest are entered on Schedule E, not added to basis. Minor repairs and such are not added to basis, nor are they deductible. Major improvements are added to basis. What other fees? 

I totaled up the costs related to preparing the property to sell (including expenses such as property tax and mortgage interest between 10/19/20-11/30/20) as well as sales expenses like real estate commissions and other fees and I added that to our initial purchase price (not the FMV at the time we converted it to a rental)

The following items are some of the settlement fees or closing costs you can include in the basis of your property.

• Abstract fees (abstract of title fees).

• Charges for installing utility services.

• Legal fees (including title search and preparation of the sales contract and deed).

• Recording fees.

• Surveys.

• Transfer taxes. Intangible taxes.

• Owner's title insurance.

• Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.

4) If you are referring to the rental fees and costs, they belong on Schedule E. 

I don't see where to list what these expenses are though- is there someplace that I should be itemizing all of these expenses and costs? 

5) Entering the sale in the rental section will do this for you. 

In the field for Depreciation Taken on this Property, I totaled the prior years' depreciation along with the amount calculated in the rental section for 2020 that will be depreciated in 2020 up until the date the property was vacated and entered it.

[vtdrevil]

Thank you for your reply, Colleen!  I have a related follow up question.

1) Since you had rental income and expenses. you should have recorded the sale in the Rental Section. 

I attempted to record the sale in the Rental Section, but I couldn't figure out how to make TT calculate the gain on the sale properly as it seemed like it was using pulling the FMV at the time we converted it to a rental to calculate it rather than our actual purchase price.  If I change the cost on the page where it was reviewing the info it transferred from 2019 to match our purchase price, then the depreciation wasn't calculating properly.  

If instead, I did it the way I detailed below, and recorded the sale as a sale of Business Property, the numbers looked correct.  Is there a reason that I couldn't do it that way?

[ColeenD3]

1)  seemed like it was using pulling the FMV at the time we converted it to a rental. That is probably because that is what you entered in the asset section. The correct way to do it is the lower of FMV or basis at the time of conversion. If you did not set it up that way initially, the program followed the entered format the entire time.

2) Is there a reason that I couldn't do it that way?

It may be possible. I have never done a practice return that way. I imagine if you do not enter any information about the sale and you remember to include the 2020 depreciation to recapture it, then it would be okay.