Rental Property Sale - Section 1232 Treatment

[tracadero]

I bought a property in 2007 for $500,000 and sold it in 2022 for $425,000. I rented this property in 2022 for a few months (2 months x $2000) and the renter bought it. It did not generate any rental income prior to 2022. Can this be treated as a Section 1232 loss where I could reduce my taxable income by $75,000?

[tracadero]

Sorry I meant Section 1231.

[DianeW777 · Accepted solution]

Yes, it will be treated as Section 1231 loss .  The rental income and expenses attributable directly to the rental period will be reported under the rental income using Schedule E.  The rental property itself cannot be listed as a depreciable asset in the rental activity section because you cannot depreciate property that is placed in service and removed from service in the same tax year. 

• Where do I enter rental income and expenses?

However, the sale will be reported as follows in TurboTax.

1. Go to Less Common Business Situations
2. Scroll to Sale of  Business Property
3. On the next screen select Sales of business or rental property you haven't already reported
4. Answer the remaining questions as it pertains to your situation (holding period, etc.)