Sale of Rental House in Turbo Tax

[MCMcFaul]

Please help - what is the difference between the selling of a rental house from the Rental Sale of Property/Deprecation area or from the Business Sale of Property in Turbo Tax Premier. I have read every question that was posed about this already, but I'm not getting any clarity on how to handle the two ways to report a sale of a rental home. If I approach it from the Rental Sale of Property/Depreciation,  I cannot find anywhere to add the basis to the house over all the years I've owned it. 

[DianeW777]

To clarify:

1. Is your rental house listed as an asset in the rental activity? This is where the sale should be taking place and data entered.
2. Is it fully depreciated?  This would mean it has been depreciated over 27.5 years which is the recovery period used since 1986.

Assuming the rental house is listed under your assets in the rental activity, the steps below will show you how to enter your sale.  

Use the original cost of each asset listed on depreciation, add those together then divide each one by the combined total to find the percentage of the cost for each asset.  Use that percentage times the sales price and sales expenses to find the selling price/sales expenses for each asset.

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.

I hope this example provides clarification to enter your sale.

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Income & Expenses
2. Under Your income and expenses, scroll down to
3. Rental properties and royalties, click Edit/Add
4. Do you want to review your rental?, click Yes
5. Under Rent and Royalty Summary, click Edit
6. Click Update to the right of Assets/Depreciation.
7. Do you want to go directly to your asset summary?, click Yes and Continue
8. Click Edit to the right of each asset to be disposed
9. Go through several screens until you get to Tell Us More About This Rental Asset
10. Click on This item was sold…….   And continue to answer the questions

You might also review information here.

Please update here if you have more questions or you can provide greater detail about your rental house.

[MCMcFaul]

Thank you so much for your reply. The rental house is definitely been in my turbo tax for years. It is not fully depreciated since i owned it for the last 10 years only. 

Now an additional question, when you say take the total of each asset, do you mean for each item in the rental house that i upgraded over the last few years, but never took any deprecation? for example, paying $14,000 for new siding. Is that something I should add into TurboTax as a new asset, and then state that it sold the same day as the house?  You are so helpful, thanks much.

[Vanessa A]

Yes and no.  If you paid $14,000 siding that should have been depreciated, the IRS doesn't really care if you took it or not.  With depreciation, they consider it taken when it is allowed.  So, if you could have taken $5,000 in depreciation, then you still must recapture the $5,000 you did not take. 

So, yes, you will include the asset separately and mark it as sold the same day as the house.

However, you will still need to act as though you did take the depreciation even though you did not. 

[MCMcFaul]

Thanks again! Now i have a really irritating question, i stupidly also went down the business sale path in TurboTax, and so it is now duplicated in Rental Property sales and Business sales.. i just want to get rid of the piece in there that thinks i sold some business property, but for the life of me, i can't find where to delete. i have gone in multiple times and marked that i have no business sales, but nothing changes. the system creates a form 4797, and i can't get it out of there!! HELP!! 

[Carl]

Regardless of where you report the sale, it gets reported on SCH D and 4797. So if you reported the sale in two places, deleting it in one of those places will not delete the SCH D or 4797, since the other place you reported the sale in, still has that sale reported there. So long as the data on the SCH D and 4797 is correct and not duplicated, you should be fine.

It can be tricky however, to delete the sale from the "Sale of Business Property" section. How you do that, depends on if you're using the online version of the program, or the CD version that you installed on your computer.

[Ruth7680]

Your questions and answers have been extremely helpful to me.  My husband and I sold a rental in 2022 and we are having the same difficulties in where to report the sale correctly.  We purchased the rental home in 2014.  We have used Turbo Tax every year so all of the previous information, cost basis, carryover losses, etc. should all carried over into our 2022 Turbo Tax, correct? Your answers helped with some of the questions but I still have additional questions:   

1.  I understand that when you are in the "Your Property Assets" section that you must edit each asset listed there (even though it's the same property.  I follow the prompts and when it gets to the screen "Special Handling Required?"  It seems like I should answer yes, since the last sentence says, "This is a rental, a home office, or a home office improvement within a home".  It was a rental, a separate single family rental home.  It was not part of our primary residence.  If I answer YES, it never takes me to a place to enter a sale amount.  If I answer NO I get to a screen that allows me to enter the sales information.  But I am still confused if I am answering the "Special Handling Required" question.  This part of the software seems confusing as how to proceed. 

2.  Sales Expenses:  Where do I enter in all the escrow sales costs, sales commissions, Title Insurance, notary fees, closing fees, etc.  Do I enter it on the "Sales Information" page under Asset Sales Expenses or do I include the sales expenses in the regular expenses section that I use for all the regular expenses related to the rental property?

3. I am also still confused with the land sales price and land sales expenses in the "Sales Information" area.  When we purchased the property in 2014 and Turbo Tax asked for the split of land purchase price...I think I went to the property tax bill that showed a separate land value.  Do I go back to the most current property tax bill and enter the land value there?  Why does the land value matter anyway?  I think you said it's because land is not depreciated.  I know any depreciation is recaptured at the time of sale.  Wouldn't Turbo Tax already know how much depreciation was taken since 2014 since we used Turbo Tax each year?  

4.  I never found an area for any financing expenses from 2014 (purchase) where any remaining amount can be used to offset the capital gain.  Is it already in Turbo Tax and I just can't see it or is there a place where I am supposed to enter it?  

Since there was such a large capital gain between the purchase and the sale, we want to make sure we report it correctly so we don't cost ourselves more in taxes.  We would really appreciate your help!

Ruth

[Carl]

1. For "Special Handling Required?" you absolutely must answer yes. Otherwise, you are telling the program that you did *not* sell the property. You state you sold it. So you must select NO.

2. Sales Expenses:

The easiest way is to just enter all your sales expenses on the primary property asset. After you select NO on the special handling required screen, you will be asked for sales information for that specific asset. For each asset you have a box to enter your sales expenses for that specific asset.

Now what you can do is enter the total sales expenses for the primary property asset itself - provided those sales expenses don't change your gain to a loss on that specific asset. You will need to pro-rate your sales expenses between the structure and the land, making sure the subtraction of those sales expenses by the program won't change your gain to a loss on that specific asset.

For all other assets, you can just make your sales expenses zero.

You also have the option of pro-rating your sales expenses across all assets. But I wouldn't bother unless it was absolutely necessary to avoid showing a loss on the primary property asset.

[Carl]

If the house was classified as a rental and you still report rental income/expenses in the year of the sale, you report the sale in the SCH E section of the program.

If the house "was" a rental or other business use in years past, but has since been converted to personal use in a prior year, that means you do "NOT" report anything concerning the property on SCH E in the tax year of the sale. There's nothing there. Then, you have to report the sale in the "Sale of Business Property" section. If the property was your primary residence in the year of the sale, you'd report it in the "Sale of Home (Gain or Loss)" section.

Assuming the property was not reported at all on SCH E in the tax year of the sale, you'll get your cost basis from the "last" tax return where you converted the property to personal use. There are two form 4562's that both print in landscape format. One is titled "Depreciation and Amortization Report" and the other is "Alternative Minimum Tax Depreciation". You'll most likely only need the first one. That will show your cost basis as well as all depreciation taken on the property and it's assets, up to the date you converted it to personal use.

[Ruth7680]

So I have very specific questions  on entering the sale info on the SALES INFORMATION page.  This is a sale of a single family home which was 100% used for a rental. We owned it for 8 years.   I am a little confused about allocating the sales price and sales expenses between the home and the land.  You said to allocate based on the original asset cost and land value.  Going back to the REVIEW INFORMATION page, it shows cost $284,761 and land $85.428.  When it says COST, I am assuming that is the total cost or original cost basis of the rental property and not the cost of the home portion only.  Our cost basis includes the purchase at  $280,000 plus closing costs.   So I am assuming that the $284,761 is the total cost basis and the land value shows the portion of the total cost basis which is for the land?  Is that correct?  If so, then the home/land percentage would be 70% home, 30% land.  Is that correct?

That brings me to the questions for the SALES INFORMATION page.

1)  Asset sales price:  Is this the full sale amount or total sales price (including the home and land) which matches the amount listed on the 1099-S as gross proceeds?  Or is this 70% of the sales price, just for the home portion?

2) Asset sales expenses:  Is that 70% of the total sales price or 100% of the sales price listed on the 1099-S?

3) Land sales price:  Do I multiply the total sales price by 30% for the land value or do I take the land value from the most recent property tax bill?

4) Land sales expenses:  Do I need to list 30% of the sales expenses here or can I list 100% of the sales expenses under the asset sales expenses and leave the land sales expenses as zero?  

I have read and re-read all the previous answers.  Still uncertain with exactly how I put all the info into Turbo Tax.  

[AmyC]

$284,761 is your basis minus depreciation taken on the asset, house - the program will do that for you.

Yes, the program subtracts out the land value and depreciates just the house.

When you bought your house, part of the price paid for the land. That is what you subtracted out and did not depreciate because land can't be depreciated. Only the house has been depreciated. The program did it for you when you entered the land value.

Sales answers. 1) Asset is house, 70% of sales price and 2) 70% of expenses

3) land value is 30% of the sale price and 4) 30% of the selling expenses.

The selling expenses can be 100% and 0% or any reasonable combination. The point is to account for all of the expenses to reduce your tax bill.

Just enter the sales information when asked.

Your sold the house and the land for one price. 70% of that price was the house, just like when you bought it. It matches up. The house has been depreciated while the land does not depreciate. Thus, the program matches up the land value sale - purchase = gain/loss.

Then the program matches up the house. The house has been depreciated so that value is subtracted from the basis. House sale -minus the total of purchase portion + depreciation.

The asset is the house, 70%. Land is 30% 

@Ruth7680 

[Ruth7680]

Thanks Amy C for your answer.  I have a couple of follow up questions to make sure I understand correctly.   I have the desktop Premier edition.  The only screen to enter the sales information is "SALES INFORAMATION". 

1) There are only 4  boxes, Asset Sales Price, Asset Sales Expenses, Land Sales Price and Land Sales Expenses.  The Asset Sales Price is NOT the full sale amount, correct?  I multiply the sales price by the percentage of the value of the improvements (not the land).  For my example it is 70%, so sales price of $574,637 at 70% = $402,245.90.  Land Sales Price is $574,637 at 30% = $172,391.10.  There isn't any other screen to enter sales information into. 

2) Back on the "REVIEW INFORMATION" screen the information auto populates with information: Date (purchase), Cost, Land, Business use percentage, and prior depreciation.  Looking at the info there I am not sure if I entered the information into Turbo Tax correctly when we purchased the rental back in 2014.  The Cost says $284,761 and Land says $85,428.  The $284,761 is the total cost for the purchase of the rental property, not the total cost less the land value.  Is the cost box and land box added together for the total purchase price OR is it correct the way it is, with the cost being the total purchase price and the land amount just showing how much of the $284,761 is the value of the land?  I hope that made sense.  If the cost box was supposed to be the total sales cost less the land value, can I just correct the amount, in this year 2022 Turbo Tax in the "Review Information" screen?  

[RobertB4444]

The purchase price of the rent house should be 70% of what you spent back then, the land should be 30%.  Sounds like the land value is correct but the house value was inflated.  You should correct it for this year so that it does not give you the higher deduction.  

@Ruth7680 

[Carl]

If you change the cost basis of "any" asset in the assets section of the program, that *will* completely skew the prior year's depreciation and the current year depreciation will be wrong. There are ways to adjust the cost basis without doing that. But with the TTX program you have to jump through hoops of fire and lakes of burning oil to do it.

The simplest way is to not report the sale in the SCH E section. Instead, convert the property and all assets to personal use on the closing date of the sale. Then report the sale in the Sale of Business Property section.