Reporting depreciation on a rental property that I sold last year.

[astubinski]

I sold a rental property in 2019 that I had put into service in 2016.  I turned a profit on it in 2016, but failed to do so in the years since.  I made a profit on that property when selling it last year, and now I need to report the amount of depreciation that I claimed on the property over the years.  

When I did my taxes in the years where I did not have positive income on the property, I let Turbo Tax calculate the depreciation for me, and on my Schedule E there was always an amount of depreciation that resulted in a fairly large loss (i.e., a negative number when expenses were subtracted from rents and royalties,) but never was I able to deduct that loss from my overall income.  It only reduced my net income on that property to zero.  

So, now I have sold that property for a fairly large profit, and I have to report the amount of depreciation I have claimed in the years that it was in operation.  It seems to me that I shouldn't have to report the excessive depreciation, that being the depreciation that pushed my income on the property into the negative on a given year; only the amount of depreciation that it took to get me to zero income on that property for that year.  Can I just calculate the amount of depreciation that it took me to get to zero in the years that I didn't turn a profit and then report that amount of depreciation when I report the income from the sale, or do I need to file amended return for those years that I was reporting a loss?

Thanks.

[Anonymous_]

Where are you seeing this behavior in the program?

Your suspended losses from past years should be released if you sold the property in 2019.

[astubinski]

It asks me, when reporting the sale, to enter the amount of depreciation I claimed.  I looked at my past years' taxes and that's when I saw how much depreciation I had reported to the IRS starting in 2017.  I had Turbo Tax calculate the depreciation for me automatically, which I suppose I should have done without amending it afterward.

I'm trying to put the report the smallest amount of depreciation so I can minimize the profit I have to report to the IRS, as I'm sure you're aware.

How do suspended losses work?  Thanks for the answer.

[Carl]

Sounds to me like you're doing it the hard way and reporting this in the "Sale of Business Property" section. If the last occupant to move out of the house prior to the sale was a tenant, then the property is still classified as rental property. The fact it may have been empty between the time the last renter moved out and the date you closed on the sale doesn't matter. If you report the sale in the Rental & Royalty Income (SCH E) section of the program, your life will be a lot easier and the program will do the math *for you*, to include depreciation recapture.

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 ahve a selection on it for "I sold or otherwise disposed of this property in  2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" 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 it it's zero. Then you MUST work through the "Sale of Assets/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. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically, when working through an asset you select the option for "I stopped using this asset in 2019" 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.

[AmeliesUncle]

As Tagteam indicated, all of those unused losses (including depreciation) have been building up as a carryover.  When you sell the property, you can then use that carryover, which includes the depreciation.   So effectively you ARE using all of that built-up the depreciation this year.

Because of that, your "prior depreciation" is included from all years.

[astubinski]

I think I have it now, thanks everyone for your help!