Sale of property with 2 houses where one house is a rental

[bleonard]

We bought a property in 1997 with 2 houses, 2 barns, and several other buildings.  We used one house and reluctantly rented out the other house in 2002.   The property was sold in August 2024.  We have been reporting rental income, expenses, and depreciation of the rental house.  For the 2024 tax return, I calculated the rental house adjusted cost basis minus depreciation recapture and determined the cap gain.

How do I report the cap gain on the sale of the rest of the property when the rental is part of the overall property?   Does it need to be entered as  2 line items on Schedule D, where the total of the 2 line items is the property sale price, adjusted cost basis, minus closing costs?

[DianeW777]

It will be entered separately as indicated below. First you must allocate the selling price to each house and the rest of the property. The best way to do that is to use the original cost of the entire property, then take the original cost basis of the rental house portion and divide it by the total original cost of the property. If you had land as a part of the rental house then you will also need to designate a portion of the selling price to the land as well.

The portion of the sales price and sales expenses for your home portion (may include the barns if they were not part of the rental house) you will report that personal use home sale using the steps below.

• Where do I enter 1099-S? (even if you don't actually have this form)
• IRS Publication 523 - Home Sale Exclusion Rules

Once you know the correct selling price for the rental portion use the steps below in the rental assets section of your return. You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Search (upper right) > type rentals > Enter > click Jump to .... link (or click the first FAQ and click Go to rentals)
2. Answer the questions and on under Rent and Royalty Summary, click Edit
3. Click Update to the right of Assets/Depreciation.
4. Click Edit to the right of each asset to be disposed of
5. Go through several screens until you get to Tell Us More About This Rental Asset
6. Click on This item was sold…….   And continue to answer the questions
   1. Be prepared with the selling price for each asset on the rental activity

You might also review information here. See the example below for the rental assets only. Example of arriving at the selling price and sales expenses for each asset in your rental activity.

Example:  Original Cost (of each asset on your depreciation schedule)

$10,000 Land                = 13.33% 

$50,000 House              = 66.67%

$15,000 Improvements  = 20%

$75,000 Total                 = 100%

Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.