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Rental Property sold after remodel

I conducted rental house remodel project in early 2021 after the tenant moved out of house in late 2020. I sold the rental house in March 2021. As I was working through the questions in TurboTax, I marked the property sold and everything about the rental house appeared to disappear from my tax returns.  I need to record the incurred expenses, mortgage interest, realtor costs, closing proceeds, etc. How do I recover this information and record the earnings and expenses from this rental house sale? Thanks

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10 Replies
ColeenD3
Expert Alumni

Rental Property sold after remodel

Since you did not rent at all in 2020, you would not have a Schedule E for 2021. You would report your sale in Sale of Business Property. You can't deduct expenses for a property that is not held out for rent. If you had major improvements, they would be added to the basis.

 

Vacant while listed for sale. If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses.

 

To report the sale, follow these steps.

 

1) Wages and Income

2) Other Business Situations

3) Sale of Business Property

4) Other Property Sales

 

 

 

 

Carl
Level 15

Rental Property sold after remodel

Most likely, you selected the option for "I did not rent or attempt to rent this property in 2021". If you select that option, the SCH E and all supporting forms are permanently deleted. The only way to get things back is to clear the return and start all over from scratch so you can again import everything from the 2020 tax file.

 

Under no circumstances should you select the option for "I did not rent or attempt to rent this property in 2020".

All of the work done on the house after the last tenant moved out should be classified as a property improvement. You can lump the cost of everything together and enter it as a single assets in the assets/depreciation section.  Give it an in service date that is the closing date of the sale.

Once everything is entered in the assets/depreciation section, click the DONE button to close out that section, Then work it through again to report your sale.

Reporting the Sale of Rental Property

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in  2021". Select it. After you select the "I sold or otherwise disposed of this property in 2021" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even if it's zero. Then you MUST work through the "Sale of Property/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets.  You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset.  Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1 on some assets. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1 on some assets.

Basically, when working through an asset you select the option for "I stopped using this asset in 2021" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.

 

Rental Property sold after remodel

Carl,

 

Your response is depressing...I sold the house in 2020 but the closing and final expenses were in Jan 2021!

 

I have just finished inputting 95% of all my tax records but did select "I did not rent or attempt to rent this property in 2021"!  After all, that is the truth of the matter!  (Why can't TurboTax provide a safeguard for this situation?  Maybe even a way to recover from this "mistake"!)

 

I need to find a way to recover the information for that Sched E without starting all over again!  Would it be possible to use 2020 form and recreate the Sched E manually?

 

Any other suggestions?

Carl
Level 15

Rental Property sold after remodel

(Why can't TurboTax provide a safeguard for this situation?

Keep in mind I'm just another user like you. I don't work for Intuit. But they do let the user know what's going to happen. At least in the desktop version. When you select the checkbox for "I did not rent or attempt to rent..." additional text immediately appears below that checkbox clearly informing the user "Since this property was not a rental at all in 2021 you should delete it as a rental. Make sure to keep your complete return, including the depreciation report for this property from 2020........" Then when/if you click the Continue button, it's gone. Permanently.

 

I need to find a way to recover the information for that Sched E without starting all over again!

There's only two possibilities here, and #1 is time consuming with an extremely high probability of human error.

1) From the 2020 tax return, print out the two 4562's that print in landscape format, along with the IRS Form 8582-Passive Activity Loss L Imitations, if that form is present in the 2020 return. You need the information to reenter all the prior year's depreciation and passive loss carry overs. To get the correct prior year depreciation for the 2021 return, you have to add together the amounts on the 2020 4562 in the prior year's depr column, and current year depr column. The total is the correct prior year's depreciation to enter on the 2021 tax return. Make sure you re-enter all assets for the property "exactly" as they appear on the 2020 form 4562. Dates and convensions must match "exactly". Perfection is not an option. it's a must. Of course, there is aq high probability of human error this way.

2) Clear the return and start over. It will probably be faster than having to go through all that stuff with option #1 above.

 

 

 

Rental Property sold after remodel

Carl,

 

I knew you weren't Intuit!  That was just my way of venting in hopes that someone from Intuit would read it!

 

Yes, I saw the 'cautionary' statement.  But, not knowing the ramifications and wanting to get this task done, I select 'continue'.  Having no prior knowledge of this process, it didn't dawn on me that I was screwing everything up!

 

Thanks for the detailed explanation!  And, no, you're not just another user like me...you're much more knowledgeable!  

 

Thanks again,

Dennis

Carl
Level 15

Rental Property sold after remodel

Hey, we don't learn this stuff through osmosis. At least, I didn't. 🙂

 

Rental Property sold after remodel

All you would need is the prior year depreciation schedule since you didn't rent the place in the year of sale ... this will be in the 2020 PDF file. You don't need to start over. 

Carl
Level 15

Rental Property sold after remodel

@Critter-3 if there's multiple assets listed for the property, then a lot of manual math on the part of the user is required. Still can be quite a lot of work, which is what the op is unsuccessfully trying to avoid.

 

Rental Property sold after remodel

Well the program doesn't do the allocation automatically anyway so they will need to do some of the  math themselves anyway even if they  use the sale of business assets section ...

 

Ok ... a simple example of ratios ...  if you have more assets than the example then you will have more lines.  Remember if you divide a big number into a littler number you get a % ...  thus 5000/100,000 = 5%

 

       original  cost basis          ratios                  Sales price             cost of sale 

home    80000                   80%                          160,000               8,000

land       15000                   15%                           30,000                 1,500

roof        5000                        5%                           10,000                   500 

totals     100,000                100%                        200,000               10,000

 

All you need to enter into the program is the % of sales price & % of cost of sale for each asset ... IGNORE the depreciation taken as it is immaterial for the sales of the assets. 

Carl
Level 15

Rental Property sold after remodel

Overall, regardless of the method used, it does not negate the requirement for one to produce a self-induced thought. 🙂

 

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