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Scott2014
Returning Member

Sale of rental Property with other improvements

I've sold a rental property. Nothing special. It appears that it is not capturing the separate improvements I had in the years of ownership. 

Questions:

Is turboTax supposed to grab that information for cost basis?

Do I need to "sell" each item tied to the property?

Does the ratio of land to property remain the same as originally layout when purchased? If I mad sales costs related only to the building to they still get split over the land expenses also? 

9 Replies
martinmarks1919
Level 9

Sale of rental Property with other improvements

They don't pick up those improvements you enter separately so it's necessary to "sell" them individually for a gain if you have a gain even if it's small (like a buck). 

AmeliesUncle
Level 11

Sale of rental Property with other improvements

Option #1:  Go through each improvement and sell it, and allocate the sales price based on the Fair Market Value.  Do NOT sell it for $1 or something like that.  That will have incorrect results.

 

Option #2:  Go through each asset, indicate it was sold, but then when you get to the "Special Situations" screen, say YES.   Then print out the depreciation schedule for the current year.  Then manually combine all assets and manually enter the sale in the "Sale of Business Property" section.

 

The ratio of land to property is what the CURRENT ratio is.  It may not necessarily be the same as when you purchased the property.

 

I'm not sure what kind of sales costs would apply only to the building, but if there is such a thing, just enter that amount for the building.

Scott2014
Returning Member

Sale of rental Property with other improvements

Thank. If I allocate an amount to each item, do i deduct that amount from the sales price?

example

sold rental for 100,000

had two capital Improvements

Roof - 10,0000 in 2015 - value  7,500

Furnace 6,000 in 2017 - value 2,000

 

Would I change the house to 90,500 (100k - minus the value of improvements)

Along with selling prices for 7,500 and 2,000 for the capital improvements?

Thanks

 

 

AmeliesUncle
Level 11

Sale of rental Property with other improvements

Yes, you would divide the total sales price and split it between the different improvements.

Carl
Level 15

Sale of rental Property with other improvements

Is turboTax supposed to grab that information for cost basis?

In a sense, yes. But one asset at a time.

 

Do I need to "sell" each item tied to the property?

To further clarify, you report the sale of each individual asset listed in the Assets/Depreciation section.

Does the ratio of land to property remain the same as originally layout when purchased?

Yes and no. The ratio on the "original" asset entry, which is the actual property/land itself, never changes. Not ever.  No exceptions. Any additional assets listed have no land value, assuming they are not land improvements. If any additional assets listed are land improvements, they're not depreciated and that "will" change the ratio. But if you report the sale correctly in the program using the guidance below, the program will take care of all this "for you".

If I mad sales costs related only to the building to they still get split over the land expenses also?

Again, yes and no.  If upon your initial purchase/acquisition of the property you show a single asset with the total cost/value of that asset in the COST box, and then you entered an amount in the COST OF LAND box, the sale of that asset is treated as a *single* asset and you have to split your sales price of that asset between the structure and the land. This is most common.

If you entered two physically separate assets with one for the structure and another for the land then you're reporting the sale of two separate assets. One structural asset where depreciation recapture is required, and one land asset where no depreciation was taken, therefore nothing to recapture. This is so uncommon that I'd call it not only rare, but extremely rare - but some do that for a perfectly viable reasons.

If you follow the guidance below, things will work out just fine assuming you have a "typical" rental property that you sold.

Pay close attention to detail in the below guidance. Otherwise, the math won't work the way you expect it to and it's possible the SCH D and 4797 will be all messed up.

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.

Scott2014
Returning Member

Sale of rental Property with other improvements

Thanks for the info

Scott2014
Returning Member

Sale of rental Property with other improvements

Does TurboTax handle the prior depreciation in regards to recapture? or do I have to manual calculate and place on a form?

Carl
Level 15

Sale of rental Property with other improvements

If you follow the guidance I posted earlier in this thread, the TTX program will handle everything just fine. Of course, it doesn't hurt to double-check the SCH D and the 4797 when done. If things aren't right on those two forms, then typically it's because of user error. Usually a case where the user made an incorrect checkbox selection or pull down menu selection on one of the screens.

Scott2014
Returning Member

Sale of rental Property with other improvements

Thank you

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