Rental property sold in January when it was empty, TT wants to delete it.

[pd215]

Our tenant was out in late 2021, the property was sold in mid January 2022.  We never attempted to rent it  while the sale was pending.  When TT asks if the property was sold, it states that we'll enter the details of the sale in the depreciation section.  However, once I check the box that says "I did not rent, or attempt to rent" in 2022, TT deletes the property from the file.  How would I enter the sale if the entire asset/depreciation section is gone? Do I just "lie" to the program by not checking the box?

[Anonymous_ · Accepted solution]

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@pd215 wrote:

How would I enter the sale if the entire asset/depreciation section is gone? 

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What you are seeing is typical program behavior; if you do not indicate that the property was in use as a rental, the program will delete the property (and asset).

You most likely should have indicated that the property was converted to personal use in the 2021 program to stop depreciation at that point since the property was taken out of service as a rental. Of course, doing so would have created issues when you transferred your 2021 return into the 2022 program.

At this point, you can enter the transaction in the Sale of Business Property section of the program (provided you are using a version that supports it), but you will have to know the accumulated depreciation figure as well as other information about the property.

[Carl]

Since you never attempted to rent it at all in 2022, what you need to do is amend your 2021 tax return and convert the property and all of it's listed assets to personal use, with a conversion date of one day after the last renter moved out. Then print out the two form 4562's for that property, as you'll need them to report the sale on your 2022 tax return in the "Sale of Business Property" section.

The two form 4562's you will need to print from your 2021 return both print in landscape format. One is titled "Depreciation and Amortization Report" and the other is "Alternative Minimum Tax Depreciation". You will definitely need the first one for reporting the sale on your 2022 return. You will need the AMT Depreciation report only if the program specifically asks you for information pertaining to the Alternative Minimimum Tax Depreciation.

[Critter-3]

OK ... simple fix ... just enter ONE day of rental use to keep the rental on the program so you can sell it off. Even if you did not actively try to rent it   I am sure if someone offered you twice the normal rent you would have rented it out... right ?  

[Carl]

simple fix ... just enter ONE day of rental use to keep the rental on the program

Seems when I suggest that, everyone and their mother jumps down my throat screaming they can't do that, because "They didn't even try to rent it in [Tax year]!" But that's exactly what I would do. Claming 1 day rented with zero rental income is no big deal. For example, if the rental contract ended on Jan 1 of the current tax year, the rent for that one day would have been paid already in Dec of the prior tax year. So you'd have 1 day of rental in 2022 with no rental income in 2022, I see no problem with that.

The problem could arise if audited however. But the IRS is not going to bother one over something that trivial. However, if pulled for a random audit, or there's other things on the tax return that trigger an audit, finding this "one day rented" thing could potentially just be another small itty-bitty feather in the cap of the auditor.

Until and unless the new congress kills the funding for the $87,000 new IRS agents to add to the 82,000 they already have, I would suggest folks keep in mind they're not hiring those new agents to go after rich people whom it's claimed "don't pay their fair share". (Many of them do.)

[Anonymous_]

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@Carl wrote:

Claming 1 day rented with zero rental income is no big deal.

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Yes, it is a big deal.

If a user enters the sale in the Rental Properties and Royalties section, the program will calculate depreciation for a period of time when the property was not available for rent. An example here would be where the property was sold on January 10, 2022, but not available for rent during the 2022 tax year. If the sale is reported on Schedule E in TurboTax, the program will calculate a half month worth of depreciation (from 1/1/2022 through 1/15/2022). 

Again, the way to report this transaction (using these facts) is by entering it in the Sale of Business Property section.

[pd215]

I decided to amend the 2021 return, but that didn't go well.  TT left some blanks in the carryover loss worksheet for 2018-2020, and when I try to correct them it won't accept my corrections.  It just keeps throwing error messages.  If I put in numbers that I'm sure are incorrect, it's happy.  So I can submit an amended return that I'm sure is wrong, or leave it alone and see if the IRS flags it.  It's just a worksheet, so does it matter?

Right now I'm thinking that I'll have to re-create 2021 and not amend.  That way the numbers will transfer correctly to 2022.  The property sold on 1-14-22.  If it had fallen through, would we have rented it again?  Maybe. 

Once the 2021 re-creation is done, I can compare the carryover worksheets and figure out how to proceed.

I usually don't have trouble following the path of numbers from one form to the next , but the carryover loss stuff has always been the area I have trouble with.  And of course, that's where things went wrong.

[Carl]

When amending a return, you only enter what you are changing. Nothing more. Nothing less. When you print out the amended return form 1040X, you'll see the original value and the changed value. Unchanged values are either blank, or identical to the original value. Do not under any circumstances enter data that you are not intending to change. No exceptions.

[Anonymous_]

@pd215 

I do not believe you ever mentioned how you handled the rental on your 2021 return.

Did you deduct depreciation for the entire 2021 tax year? If so, perhaps you might want to hold off amending if you can simply claim the property was available for rent while it was listed for sale.

[pd215]

Yes, we deducted for the entire year.  I had possession of it on November 29, and listed it in TT tax as rented for 332 days.  At the time, I didn't think letting it sit vacant while getting it ready for sale was considered personal use.   Right now, I'm thinking of not amending and changing it to personal use a few days before the closing happened.  By amending I get a small refund for 2021, but increase my tax bill for 2022.   The difference in money between the years isn't the issue, it's minor.    

As far as the pending (incomplete) amended return goes, TT changed some numbers on the carryover worksheet to blanks, and wouldn't let me leave them that way.  It just doesn't like what I think are the correct numbers.  If it hadn't done that, I probably would have moved ahead with the amendment.

Meanwhile, I'll keep plugging away on re-creating the original 2021 return.

[Anonymous_]

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@pd215 wrote:

Yes, we deducted for the entire year.

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Then you may want to leave it at that (which appears to be your intention). You can claim it was available for rent throughout the 2021 tax year.