We purchased a home in 2010 to be used as a rental. Our daughter fell on tough times, moved in to the house and never paid rent. The fair rental value did not exceed the annual gift exclusion. We did not take deductions on this home, and it was never shown on schedule E. We stored trailers and equipment on the property that we used for our business. Our daughter moved out in 2018. We invested in improvements so the home could be sold. It sold in 2019. The price we received was $30,000 less than our cost basis. We did receive a 1099 S from the sale. How and where do we report the sale ? Thank you for any help you can give us !
IRS rules say, when you convert personal use property to business use (this would be in 2018 when your daughter moved out), the value assigned to the property for depreciation purposes is:
The LESSER of...
the adjusted basis of the property,
or its fair market value
...on the date of conversion.
The adjusted basis of the property you purchased for personal use is generally what you originally paid for the property on the date of purchase.
Thank you. So do we take the adjusted basis, and add the dollar value of improvements made after our daughter moved out to come up with our cost basis ? Where do we report the conversion from personal use to business use so that we can then report the sale of the business use property?
According to your post you did not convert it to business use ... you used it for family (personally) and then took time to fix it up and then sold it.
Your basis is the original purchase price + cost to purchase + improvements (fixes) + cost of sale.
Sales price - basis = profit or loss reported on the Sch D.
To enter this sale of a second home in TurboTax Online or Desktop, please follow these steps:
- Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
- Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
- Next click on “I’ll choose what I work on” (jump to full list)
- Scroll down the screen until to come to the section “Investment Income”
- Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section)
- The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
- Since you did not receive a 1099-B, answer “no” to the 1099-B question
- Choose type of investment you sold - select Second Home
Thank you. We have had a second home at the beach for over 20 years, and deduct mortgage interest and taxes paid on it. How many second homes can we have? Can we also call the home that our daughter lived in our second home ? Does the fact that we used it for business storage of tools and trailers make it business use ? After we sold it, we are renting space elsewhere for storage of these items.
We purchased a home in 2010 to be used as a rental.
Since it was never rented out, I don't see any business use here for anything. You simply report the sale of what is essentially a 2nd home. It gets reported under the Personal Income tab, Investments section, Stocks, Bonds, Mutual Funds, Other.
To report any of that sale as a "business" use property the business would have had to pay you rent for the use of the yard which had to be reported on the Sch E on the past tax years which you did not do. So all you have is a non deductible personal use property sale.