sale of rental property converted from primary residence

[JZ2025]

I have turned my primary residence to a rental property and sold it in 2024.  Here is the history.

1. Bought the property in 2010 for $680k

2. Rented it out in 2015. The FMV at the time was $980k, higher than purchasing price. Depreciation for tax reporting still used $680k as basis.  

3. Sold the property in 2024 for $1,180k, excluding expense.

Is my taxable capital gain

(1) $1,180k - $680k = $500k, or

(2) $500k prorated with the property-renting time (9 years) to total property-owning time (14 years) = $321k or 

(3) $1,180k - $980k = $200k? 

If $200k, how do I input to Turbo tax to reflect FMV at the rental start time?  Turbo tax asked for all information except for FMV at the rental start time. I assume if (1) or (2), Turbo tax will take care of it. Depreciation is about $130k in total and recapture is counted additionally.

Thanks for help.

[DianeW777 · Accepted solution]

Yes, TurboTax will handle the depreciation and the sale using the information provided below. You have all the information you need to complete the sale of the rental property. No exclusion will be allowed since you did not use it as your main home 2 of the last 5 years before the sale.

The fair rental value (FRV) has no part of the sale.  The only time that is considered and/or used is if the time the home was converted to a rental property.  If the FRV had been lower than the cost on the day of conversion, you would have used that as a cost basis for depreciation.  In your case and in most cases land and homes do not depreciate so FRV is rarely used.

Sales details and entry are shown here - first sales price of any and all assets. To figure out the selling price for each asset:

1. Take the current basis of each asset against the total combined basis of all of your assets to figure out the sales price for each one; OR 
2. Determine a fair market value for each asset against the total value of all assets to figure out the sale price for each one. 

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. (Choices would also be fair market value on the date of the sale or adjusted basis on the date of the sale, which is cost less depreciation.)

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.

Report the sale under your rental house.  

1. Open your TurboTax Online/Mobile or TurboTax Desktop 
2. Search (upper right) > Type rentals > Click the Jump to... link 
3. Rental Property select Edit > Continue to the screen 'Tell Us More About This Rental Asset'. 
4. Select that you purchased it, also the item was sold, retired, ...., etc. > Yes always used 100% for business
   1. Selling Price: $1,180k
   2. Sales expenses
   3. Cost: $680k (prorated for each asset, building, land , improvements, etc)
   4. TurboTax will incorporate the depreciation used until sale date for each asset
   5. All gain will be capital gain and limited to the special tax rates.

[JZ2025]

Dear DianeW777,

Thank you very much for your reply. It is clear and solved my puzzle.