Sale of rental property: need help handling associated depreciated assets

[ljwobker]

Purchased a rental property and put it into service in 2016.  Did two substantial renovations, one each in 2017 and 2018.  These are tracked in TT as separate assets with depreciation separate from the "parent" property.  When I tried to follow the interview for reporting the sale of the home, it started asking me questions about the specific assets, which I wasn't expecting.    Isn't the program supposed to compute things like depreciation on the "sub assets" automatically when you report the sale of the main property?  It's entirely possible I got onto the wrong track somewhere but I'm not sure how this is supposed to work. 

Or is the mechanism here that you "edit" each of the individual assets to report that they were all taken out of service (i.e. all the improvements were sold with the property...) and then you also report the sale of the main property in the business rental sale interview?

When the interview asks "how much depreciation was taken on this property" -- is that the total that's been allowed/reported for all previous years, or does that have to be adjusted somehow in the case that some of these losses were disallowed?

[ThomasM125 · Accepted solution]

Depreciation will be calculated by TurboTax on each asset in order to determine the depreciation expense for rental income in the current year. 

When you sell the property, you must determine the cost of the house and improvements plus depreciation deducted during the time it was rented to properly account for the sale. TurboTax may ask you to provide some of that information and some of it might be auto filled by the program.

[ljwobker]

So does that mean the process is something like:

1) compute the depreciation for that year for each of the sub-assets

2) go through the interview for the sale of the main property, and INCLUDE all the claimed depreciation for the subassets over the years, and then adjust the basis based on the cost of the improvements?

[Carl]

If the last occupant to move out of the property prior to the sale was a tenant, and you did not live in the property between the time that tenant moved out, and you closed on the sale, the property remains classified as rental property and you report the sale in the Rental & Royalty Property (SCH E) section of the program. Therefore, *you* don't have to compute anything, exception the distribution of the sale price across access. Please read the below carefully.

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  2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" 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 it it's zero. Then you MUST work through the "Sale of Assets/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. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically, when working through an asset you select the option for "I stopped using this asset in 2019" 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.

[ljwobker]

This is very helpful.  One of the sub-assets is the amortization of mortgage points - I suppose I just report those as sold at a gain (even though that doesn't make much sense).  For the hard improvements such as the kitchen/bath remodeling work, do I just assign a reasonable percentage of the home sale price to each of these improvements, making sure that each is reported as a gain?

Said another way: does this equation make sense for each asset:

(allocated sale price of sub-asset)  >  (initial cost of asset - depreciation for that asset)

And further, am I correct in assuming that if I have four sub assets, I'll end up with four different sections for calculating the depreciation on schedule E (for the part of the year that asset was in service) and then four separate "sales" where I calculate the capital gains on the disposition of these assets?  

And if that's correct, what form(s) do the capital gains calculations end up on?  I'm trying to align the interview with the forms view.