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RK73
Returning Member

Sale of Rental Properties and Automatic Generation of 4797

Thanks for the help.

 

I have sold 8 of my 10 rental real estate properties in 2021.  I had been using Deluxe, but after a call to tech support they recommended I "upgrade" to Premier which I have done.  I checked the box in property information of each property that it had been sold, but I don't get further questions as to date, price, costs of sale, etc. and no 4797 is generated. 

 

I was hoping by checking the "sold"  box in the property profile that the proper questions would be asked, a 4797 generated and the individual depreciable items be marked as sold on the building's sold date.  None of that has happened. 

 

Am I expecting too much and I need to just manually do all this?

 

 

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3 Replies
Carl
Level 15

Sale of Rental Properties and Automatic Generation of 4797

Assuming you have each property entered seprately on the SCH E, here's the gist on how to report the sale in the SCH E section of the program.

Note that you'll work through each property one at a time. If you have questions, then by all means asks. With 8 sales, you can't mess this up.  So if you've attempted to report a sale already, I would recommend you clear the return and start over from square one so you can import necessary data on each property from the 2020 tax return.

Before you start anything through, confirm beyond a doubt that "all" of the imported data is actually there for each individual property. I've seen cases where folks have more than 3 rentals, and at least one of them does not import. So check that.

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 have a selection on it for "I sold or otherwise disposed of this property in  2021". Select it. After you select the "I sold or otherwise disposed of this property in 2021" 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 if it's zero. Then you MUST work through the "Sale of Property/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 on some assets. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1 on some assets.

Basically, when working through an asset you select the option for "I stopped using this asset in 2021" 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.

 

HelenC12
Expert Alumni

Sale of Rental Properties and Automatic Generation of 4797

@RK73

 

Carl is correct and gives valid points.

 

TurboTax does calculate the gain or loss taking into account depreciation recapture when you sell an asset.

 

Please see my previous post on step by step instructions on how to report the sale of a rental so Form 4797 is generated. Click here

 

Some items to remember as you enter your rental sale:

  • You have to indicate you sold the rental property in both the Property Profile section and the Assets/Depreciation section of the program. You will be prompted to enter sales information during the interview in the Assets/Depreciation section of TurboTax. 
  • Closing costs are considered  expense of sale and this reduces the gain or increases a loss on the sale. TurboTax will ask you about the expense of sale.  Examples are commissions, transfer tax, recording fees, etc.

Related information: 

 

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Carl
Level 15

Sale of Rental Properties and Automatic Generation of 4797

The only thing I question in the referenced instructions, is using the amount from the 1099-S (if that form was issued).  Generally, that form may only show the amount of cash disbursed to the seller at the closing. That disbursement may not include everything. For example, if the seller has an outstanding mortgage on the house, the title/closing company will usually withhold the funds needed to pay off that existing loan and pay it off on behalf of the seller. The loan payoff amount is not deductible by anyone. Only the interest paid on the loan is deductible by the seller. So it's not at all uncommon for that payoff amount to not be included on the 1099-S.

Bottom line is, the contracted sales price as shown on the ALTA settlement statement takes precedent over all.

 

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