Sell of rental property

[arulli1948]

I had a rental property since 2005 and used Turbo Tax to prepare my taxes since then. I sold this property in June 2019, though the last tenant's End of Lease was Dec 2018, so there was no rental income for all of 2019. 100% 2019 activity on this property was preparing the property to sale.

When entering this property in Turbo Tax for 2019, I checked I sold the property in 2019; checked No, this property was not rented all year; 0 (zero) Days rented at fair rental price; 0 (zero) Personal use during the year; and did not check I did not rent, nor attempt to rent this property at all in 2019. Is this the correct entry? If I checked this box I did not rent......... a statement pops up stating Since this property was not a rental at all in 2019, you should delete it as a rental. Before proceeding I would like a clarification.

[ColeenD3]

That is correct. If you did not rent it in 2019, there is no reason to enter it in the Rental section. You would enter your information in the Sale of Business Property section.

To this rental sale under the sale of a business property in TurboTax Online or Desktop, please follow these steps:

1. Once you are in your tax return, click on the “Business" tab ("Federal Taxes" tab in Premier)
2. Next click on “Business Income and Expense" ("Wages and Income" tab in Premier)
3. Next click on “I’ll choose what I work on” (Jump to full list)
4. Scroll down the screen until to come to the section “Less Common Business Situations” ("Business Items" in Premier)
5. Choose “Sale of Business Property” and select “start’
6. Select "Sale of business or rental property that you haven't already reported"
7. Sale of Business or Rental Property - yes
8. Enter all the information about your Rental Property Sale here

1. Description - address of property
2. Date acquired - original acquisition date
3. Date sold - date of sale (should be on 1099-S)
4. Total sales price - total sales price (should be listed on 1099-S)
5. Cost of property (or tax basis) plus expenses of sales - original cost plus any capital improvements plus expenses of sales
6. Depreciation taken on this property - total depreciation taken property when rental (Please note the IRS will assume that you have taken the correct depreciation on your rental property while your property was available for rent regardless of whether you have actually take it or not)

1. What type of property is this? - select - Rental estate that I took depreciation on.
2. Installment sales - no if not on installment sale
3. 2 screens that show the summary of what you have entered for your property sale

[Carl]

You are absolutely correct to report this sale in the "Rental & Royalty Income (SCH E)" section of the program. The key thing is that you *DO* *NOT* *SELECT* the option for "I did not rent or attempt to rent this property in 2019". If you select that option, you will be *FORCED* to delete the SCH E from your 2019 return, and you don't want to do that.

For some scenarios if you indicate zero days rented, the program doesn't like that. If this happens to you, then indicate it was rented for 1 day and of course, zero days personal use. You'll be fine.

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 ahve 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.

[arulli1948]

Should I include the total expenses preparing the property to sale in the Cost of Property (or Tax Basis) Plus Expenses of Sale field? All expenses occurred in 2019 and expenses included such items as Resale Certificate,  listing fees with real estate broker, hazard insurance, utilities, maintenance and repairs, None of these expenses were listed on the Statement of Transactions for the sale of the property.

[arulli1948]

Coleen,

Should I include the total expenses preparing the property to sale in the Cost of Property (or Tax Basis) Plus Expenses of Sale field? All expenses occurred in 2019 and expenses included such items as Resale Certificate,  listing fees with real estate broker, hazard insurance, utilities, maintenance and repairs, None of these expenses were listed on the Statement of Transactions for the sale of the property.

[ColeenD3]

Yes, if the expense qualifies.

Sales expenses include:

 - commissions

 - appraisal fees

 - broker's fees

 - legal fees

 - advertising fees

 - home inspection reports

 - title insurance

 - transfer taxes or fees

 - geological surveys

 - loan charges (points) or other fees paid on the buyer's behalf

Sales expenses do not include:

 - mortgage payoffs

 - home equity loan payoffs

 - rent-back costs

 - payoff to creditors

 - property taxes

 - home owner association fees

[arulli1948]

Coleen, 

One final question regarding this subject; I purchased this property 50/50 with my son and indicated so in Turbo Tax Premier when entering income and expenses and calculating depreciation in all previous years. How should I reflect a 50/50 split when entering items 4. Total Sales Price and 5. Cost of Property? Should I divide these by 2?  

[ColeenD3]

Yes, if you are a 50% owner, then everything, cost, improvements, depreciation, sales expenses and sales price are split 50/50.

[AlexanderS08]

Yes, you should include those amounts you mentioned in preparing the property for sale in your cost basis. This will serve to lessen any gain on the sale. Resale certificate and real estate broker fees are added to basis, but hazard insurance, utilities, and maintenance are not costs of sale and they should instead be entered as rental expenses in the final year of the rental activity.

[arulli1948]

Thanks Alexander for your comment. This brings up a new question. I did not rent this property at all in 2019. End of Lease for last tenant was December 2018. All 2019 expenses, including utilities and hazard insurance occurred while we were preparing the property for resale and the time the property was on the market.

After reading your comment I was going to redo my return though I already deleted the property from the Rent and Royal Summary and am not sure if I can add it back and if all prior years data (cost basis, depreciation, etc.), for this property will transfer over, or if is lost and will need to be reentered. Since I already deleted this property my current return, is it too late to redo my return Is it better to leave it as is? 

[ColeenD3]

Unfortunately, unless you had the property available for rent, these expenses are not deductible.

Vacant while listed for sale. If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses.

[arulli1948]

Thanks Coleen.

[IKI]

I made a mistake in entering some of the allowable expenses related to the sale of our rental property, legal fees, brokerage, etc. How do I correct/edit these entries? I note that my Federal and State refunds increased as a result of these entries but I cannot find the 'quick entry form' that I used to enter these values so that I can edit/correct them. I use TT Premier.

[MayaD]

If you didn't file your return, follow the steps below to deduct the expenses from the sale of rental property:

1. Log in to your account.
2. Go to Federal Taxes.
3. Go to Wages and Income.
4. Scroll down to Other Business Situations and click show more.
5. Select Sale of Business Property and click revisit.

If you already submitted your return you need to amend to make any changes.

If your return is accepted, wait until your return has been fully processes and you received your refund ( if you are expecting a refund ), then amend your return. 

Here's how you amend your return:

1. Sign in to your account.
2. Scroll down to Your tax return & documents , select 2019 and then Amend (change) return. 
3. Select Amend using TurboTax Online.
4. Follow the instructions, your refund or tax due will change to 0. This is normal on amended returns.

Amended return can't be e-file, you need to print it and mail it in.

On the Tax Home web page when the Form 1040X for amending a 2019 tax return becomes available there will be a link - Amend (change) return. Form 1040X is expected to be available on 02/27/2020.

[IKI]

Thanks MayaD

I had tried this before and I followed your suggestions again. However, unfortunately none of these suggestions exposed the original entry forms where I had previously entered, and made mistakes, with the various allowable costs associated with the sale of the property. I'll direct this question to TurboxTax (if possible).