You will need to finish your Schedule E for tax year 2024 entering any income and expenses associated with the rental before the sale.
Usually you would also indicate that the rental was sold, but in your case you'll need to indicate that it was converted to personal use and then enter the sale.
If using TurboTax
After you're finished closing out the Schedule E,
report the sale under
Less common Business Situations
Sale of Business Property
Select SALES
Total Sales Price would be half the amount on the 1099-S
Cost would be your half of the purchase (plus half of selling costs)
(NOTE: If you have remaining values on other assets, (like appliances) you can add the remaining values to the tax basis of the rental to get them off the books, but if you split those costs with the other owner, you'd have to split those costs as well)
Depreciation would be all depreciation taken (or should have been taken)
Basically, since only you claimed the rental activity, you claim half the proceeds on the 1099-S and half the selling costs.
You use as your basis, half the original basis (which is usually your portion of the purchase price) less ALL the depreciation.
The other owner claims half the proceeds on the 1099-S and half the selling costs.
Their basis would be half the original basis (their portion of the purchase price). They would not adjust for the depreciation.
So if the rental was purchased for 200,000 your half would be 100,000.
If the rental was depreciated 30,000, your adjusted basis would be 70,000.
If sold for 300,000 your half of the proceeds would be 150,000.
Depreciation recapture would be 30,000 and Capital gain would be 50,000.
The other owner would have 50,000 capital gain only.
(if you have other assets remaining, like flooring with a remaining life of let's say 5,000, allocate 5,000 to the remaining assets to get them off the books. In this example you'd have 145,000 remaining proceeds to apply to the house/land)
If the depreciation taken was more than half the original basis, the sale will be difficult to enter into TurboTax since your adjusted basis would be less than zero.
If this is the case, the sale will be complicated to enter, you may need help.
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