Sale of Rental Property - 2020 Two Questions

[Petersbk]

I am using the Premier Desktop version of Turbotax.  The rental property in question was purchased May 1995, converted from personal use to rental on 1/1/2002, and used exclusively as a rental from that point until it sold on 1/8/2020.  2 questions

1.  Where do I report the sales price of the property?  I confirmed the home was sold and have entered all but one number in the depreciation section (See question 2 for more info on that).  I have entered our 1995 purchase price, the date the home was converted from residential to a rental property, the amount of depreciation we have taken, and the date we sold the home.  NOWHERE has it asked for the sales price.  I've used the edit feature to review my information more than once but cannot find any further questions. What am I missing?

2.  Land value in depreciation section -  I have no idea what number to use here.  I do not have the property tax bill from 26 years ago.  Land value is not included on our current tax bill, so I'm not convinced it would have mattered anyway.  All my current tax bill shows is fair market value of the property and assessed value (which is simply 40% of fmv).  

[ThomasM125]

You should go to the asset section and edit the house and indicate that you sold it, you will see this:

After that you will see an entry for the sale price.

The land can be significant since you can't depreciate it, so the gain on sale of it is taxed at favorable capital gains rates. But you can leave it blank, as it will not understate your tax, it would just increase it.

[Carl]

Here's the guidance for reporting the sale of your rental property. Doing it this way, the program will take care of the math (land value, depreciation recapture, etc.) *for you*. Just heed and follow the guidance below, if you have multiple assets listed in the Sale of Property/Depreciation section.

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  2020". Select it. After you select the "I sold or otherwise disposed of this property in 2020" 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 2020" 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.

[Petersbk]

I had already done this.  I checked the box saying the item was sold and listed the sale date as 01/08/2020.  The next screen asked me to confirm my depreciation taken over the years.  After that I checked "yes" on the special handling page because the percentage of business use varied over the years we owned the property.  Turbotax calculated allocated depreciation allowed and said we were done.  Never was I asked any questions about the sale.

[Petersbk]

I'm still not having any luck.  I marked that the property was sold and then disposed of the house in the depreciation section.  I confirmed the amount depreciation taken over the years and then checked yes on the special handling page because the business use percentage of the home varied over the time of ownership.   I've entered the purchase price of the home, the date it was converted from a personal residence to a rental, and the sales date.  Turbotax still is NOT asking for any info regarding the actual sale.  The program calculated the allowable amount of depreciation for 2020 and then said we were done with that asset.

[Carl]

checked yes on the special handling page because the business use percentage of the home varied over the time of ownership.

That's the problem. If you check YES, you are telling the program that you did *not* sell the property. You must select NO.

Understand that even though the business use percentage varied over the years, if the total depreciation shown to you in the program (prior year's total and current year) is the correct amount of depreciation taken on the property, up to the date of the sale, then you're good. All of that depreciation will be recaptured as it should be.But for that to happen, you must select NO on the special handling required screen. Only then will you be asked for sales information on that specific asset.

[Petersbk]

Ok - it is the Special Handling page that is holding me up.    When clicking "Learn more" next to the option that says "The business use of this asset varied during the time of ownership" I see the following note:  

Variable Business Use Percentage

If the business use percentage varied over the life of the asset, the program cannot automatically compute the sale information.

The house in question was used as a rental from May 1995 - December 2001.  It was used exclusively as a rental from 1/1/2002 until the sale on 1/8/2020.  It seems to me that it would be appropriate for me to check "yes" on the special handling box since the asset went from 100% personal use to 100% rental use during the time of ownership.  Is that correct?  If so, am I understanding that Turbotax is basically worthless to me when trying to account for the sale of the home?

[Carl]

That's another example of the TurboTax programmer's "boilerplate response". Bottom line is, if the total depreciation shown (prior year's and correct year) in the assets section is "in fact" correct, then the program will have no issues with dealing with it.

If it's not correct, then you would be right in clicking yes. Then, you personally would have to manually figure the total of all depreciation taken up to the the date of the sale, and you would have to report the sale of this property in the "Sale of Business Property" section of the program.

[ynotsun31]

Would this require special handling in Turbo Tax?  I am using Deluxe and there is a question about whether If the business use percentage varied over the life of the asset. 

The only change in business use was in 2003 when it went from 0 to 100%.  Do I answer yes or no to the question?

Thanks,

Alex

[Carl]

Would this require special handling in Turbo Tax? 

That depends. If you will be reporting the sale in the "Sale of Business Property" section, then YES, special handling is required in order to indicate conversion to personal use on the closing date of the sale and stop depreciation on that date.

I am using Deluxe and there is a question about whether If the business use percentage varied over the life of the asset. 

No, your business use percentage did not vary. Not ever. Once it became 100% business use, it remained 100% business use for the entire time it was classified as a rental.

[ynotsun31]

Hi Carl,

Thank you for the reply!  As soon as my last tenant left in September 2021, I started getting the rental house ready to sell and closed the sale on Dec 13th, 2021.  So I never converted it back to a primary residence.  So when it is asking if I stopped using this item for business purposes in 2021, should I answer yes or no?  It then asks for the actual acquisition date which was back in June 1996 when I purchased as a primary residence and then converted to full-time rental in June 2003.  After I enter the details of the sale, a question pops up asking if I used this rental property as a personal residence any time after May 6, 1997 (not sure how this date came about), which I was still using as personal residence up until June 2003.  Should I still answer no to this question?

[Carl]

So when it is asking if I stopped using this item for business purposes in 2021, should I answer yes or no?

Answer YES.

It then asks for the actual acquisition date which was back in June 1996 when I purchased as a primary residence and then converted to full-time rental in June 2003.

That date "should" already be filled in. Leave it alone or you'll completely skew the depreciation history.

After I enter the details of the sale, a question pops up asking if I used this rental property as a personal residence any time after May 6, 1997 (not sure how this date came about), which I was still using as personal residence up until June 2003. Should I still answer no to this question?

I don't know why you're being asked that question. Typically, you would only be asked that question if you qualified for the "Lived in 2 of last 5 years" capital gains tax exclusion. You don't qualify for the exclusion since the property was not your primary residence at any time in the last 5 years you owned it, counting backwards from the closing date of the sale. Perhaps you incorrectly selected the option to indicate that "this includes the sale of my primary residence" maybe?

[ynotsun31]

It then asks for the actual acquisition date which was back in June 1996 when I purchased as a primary residence and then converted to full-time rental in June 2003.

This was originally blank, should I just leave it blank?

Also, do I need to enter Nonrecaptured section 1231 losses?  The only time I had something in Form 4797 was in 2016 but related to another business' K-1.  Not related to this rental property.

[Carl]

This was originally blank, should I just leave it blank?

Where are you reporting the sale? In the SCH E section in "sale of assets/depreciation"? Or in Sale of Business Property? If in SCH E section, something's not right. If in "Sale of Business Property" enter the original acquisition/purchase date.

Also, do I need to enter Nonrecaptured section 1231 losses?

Only if you're reporting the sale in the "Sale of Business Property" section. If reporting in the SCH E section, you shouldn't even be asked for that, as the program "knows" what to recapture in that section already.

[ynotsun31]

When I click on update under sale of property/depreciation and then select edit of Rental House, then it takes me to: 

Did you stop using this asset in 2021?

Select Yes if the item was:

Sold

Stolen

etc.

I select Yes, then it takes me to Disposition Information where it asks me the date of sale and date of actual acquisition.  Then it goes into Special Handling where I select No.  Then whether the asset was included in the sale of my main home and I select No.  Then it takes me to the Sales Information page where I enter the allocated sales price and expenses in both improvement and land.  Then it takes me to the question of whether I used this rental property as a personal residence any time after May 6, 1997.

When I click done, the summary page then shows what I entered under Business Items / Sale of Business Property.