Sale of rental property using installment sale

[woody726]

I sold my rental property to my current tenant using installment sales.  I have entered the sale under the Business--> less common business--> sale of business property.  I entered the date purchased 6/6/2001, sale date, 10/31/2024. Cost of property $228,964, sold for $639,000, closing costs ~$18K  It asked me if I "sold all assets" associated with this property, I answered no, so it told me to go back in and "sell" them.  The first item listed  is the property itself. How do I calculate these numbers:

Enter the following information about the sale of this asset.  You must divide, or allocate the sales price and expenses between the land and the asset (improvement) based on their fair market values.

Asset Sales Price (Business Portion Only) _________

Asset Sales Expenses (Business Portion Only) ________

Land Sales Price (Business Portion Only) ___________

Land Sales Expenses (Business Portion Only)___________.

Once I do that for the first listed asset, it continues to ask for every asset listed.  How do I calculate the above for every "asset" listed?  We have done quite a few renovations/improvements over the past 20+ years.

[DianeW777]

Yes, here is an example of how to apportion the selling price and selling expenses.

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. If some assets no longer have a value you can use zero for those such as an appliance that is 10 years old.

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.

As you noted, you will be asked if you want to report this using the installment method.  Answer Yes, then continue to finish the sale of each asset (building and land, and other assets).

NOTE: All depreciation recapture will occur in the year of sale, only gains above this amount will be allowed to use the installment method.

[woody726]

Checking for understanding: Values according to my Depreciation Report....

125,000 Land                = 31.70% 

101,588  House              = 25.75%

$167,834 Improvements  = 42.55%

394,422  Total                 = 100%

First entry (after the house itself) is pool revo 9/5/2003 for $4703. If I understood you correctly, I would divide $4703 by $167,834 to get 2.8%.  Then multiply 2.8% by the sales price of house only or total sale price?  That would mean the sales price of the pool renovation was $17,892 (if I use total sales price)??? That seems really high.  When I did that, the current "refund" amount dropped by like $3k...and I still have lots more "assets" to sell, for instance interior update for $73,966

[PatriciaV]

Use the same percentages to allocate the total sales price (and any selling expenses).

As an example, if your total sales proceeds were $500,000:

Sales proceeds for the improvements would be $500,000 x 42.55% = $212,750. 

Subtracting the basis you provided would result in a gain = $212,750 - $167,834 = $44,916.

You have the option to report the improvements with minimal value as a sale equal to their basis (net zero gain/loss). Then report most (or all) of the improvement sales proceeds on the asset with the highest basis. As long as the numbers total to the actual gain/loss for the sale, you should be fine.