Rental property sell

[Swu33]

We have multiple rental properties, and we put one of them into the market towards end of 2022, but it didn’t get sold until early 2023. That being said, the property was not rent during 2023. Should I still report the sell of the property under the rental and royalty section?

The other properties have significant loss due to vacancy and major upgrades. Can I write off the gain from the sold property with the loss  from the other ones? 

[JamesG1]

You will see passive activity losses offset by the sale of the rental property on IRS form 8582 Passive Activity Loss Limitations rather than reported on IRS Schedule E.

The rental property put up for sale in 2022 and sold in 2023 should continue to be reported as a residential rental on IRS Schedule E Supplemental Income and Loss.  Expenses incurred while the property was idle would be deductible as residential rental expense.

See IRS Publication 527 Residential Rental Property, page 10 here.

Idle Property 

Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it is not available for rent.

Report the sale of the rental property at the screen Did you stop using this asset in 2023?  The sale of the residential rental will be reported on IRS form 4797 Sale of Business Property rather than on IRS Schedule E.

[Swu33]

thanks for your reply. Are you saying I should still report the depreciation and repair expenses in the rental property section, but report the sale in the sales of business property section? In that case, can I write off the capital gain from the sale with the loss of the other rental properties? 

[JamesG1]

When you say "with the loss of the other rental properties", are you referring to other assets which were being depreciated along with the residential rental that was sold?

If that is the case, suppose you sold a residential rental at 123 Main Street and you had three other assets included with that rental property.  The assets were a washer, a dryer and a refrigerator.  Are these three assets the "other rental properties" to which you refer?

If that is the case, all four of these assets would follow the sale / disposal process outlined below.

TurboTax will report the sale / disposal of the rental property on IRS form 4797 but you access the sales disposal questions through Your 20023 rentals and royalties summary.

• Click Edit to the right of Rental property.
• Click Edit to the right of the asset which was sold or disposed of.
• At the screen Tell us more about this rental asset, select The item was sold, retired, stolen, destroyed, disposed of, converted to personal use....
• Enter the date sold.  Continue through the screens and sell / dispose of each asset.

The sales are reported on IRS form 4797 but flow to IRS Schedule D at line 11, Gain from Form 4797.  So the offset of the sale/disposal of these assets takes place at that point.

You are able to claim depreciation, repair, maintenance and reasonable expenses of the rental properties (even idle properties) on IRS Schedule E.

[Swu33]

no. I have other rental properties. Say I sold 123 main st in 2023, while I still own 345 main st and it was rented out in 2023. However, 345 main st is vacant for 6 months due to tenant moving out and major upgrade therefore there is significant loss (50k). say my capital is 100k from 123 main st, and I am just wondering if it's possible for me to write off the 50k from the 345 main st?

[PatriciaV]

No, the capital gain from the sale of one property cannot offset the rental expenses of another property. This is especially true for a vacant/idle property.

According to IRS Pub 527 - Vacant Property, you can’t deduct any loss of rental income for the period the property is vacant.

You can, however, continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it isn’t available for rent. (IRS Pub 527 - Idle Property)

Because the property was not available to be rented, any costs for repairs or improvements that you incurred increase the basis of the property and should be entered as a separate Rental Asset (improvements). These costs are NOT rental expenses for the period while the property was vacant/idle.

@Swu33