Selling a Rental Property

[AASolo]

I had a rental that I put up for sale at the end of 2019.  The property finally sold and closed in July of 2020.  During the entire year of 2020 until the property sold it was vacant and we did not attempt to rent the property for all of 2020. 

I'm having trouble understanding how I am supposed to report this in Turbo Tax.  When I go to the rental section and mark that I sold a rental property you are asked how many days you rented the property for 2020 and how many days it was used for personal use which was 0 for both.  Under that section you are given a check box that basically states that you did not attempt to rent the property at all for the year which is correct in my case.  Once you check the box it tells you that you need to delete it as a rental property since we didn't rent it for 2020, but how do I report the sale of the property.  The only other section I found was if I were to report it as the sale of a 2nd home which I'm not sure if that would apply in this situation.  Can anyone help me with this?  

[DianeW777]

Yes.  You should indicate it was sold in the asset section of your rental activity.  If the property was available for rent, regardless if you pursued a tenant  AND if it was not converted or used for personal purposes, then it was available all year (for the period of the year you owned the property). You would also indicate it was rented at fair rental value.  If you have no income then you will report zero income.  The expenses for utilities or insurance, etc, can be listed as rental expenses while the property was empty.

Continue to enter the sale of all assets using the information below.

The IRS requires that the selling price be proportionately prorated to arrive at a selling price for each 'piece' of a rental property since many assets can be placed in service at different times, such as land, the original structure/house, capital improvements or a new roof, etc.

The selling price should be prorated for each asset then entered for each asset when you indicate they were sold or disposed of. You will not lose the remaining depreciation because you will use the remaining basis against the selling price to determine gain or loss. 

To figure out the selling price for each asset:

Use the original cost of each asset listed on depreciation, then 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.

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.

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Income & Expenses
2. Under Your income and expenses, scroll down to
3. Rental properties and royalties, click Edit/Add
4. Do you want to review your rental?, click Yes
5. Under Rent and Royalty Summary, click Edit
6. Click Update to the right of Assets/Depreciation.
7. Do you want to go directly to your asset summary?, click Yes and Continue
8. Click Edit to the right of each asset to be disposed
9. Go through several screens until you get to Tell Us More About This Rental Asset
10. Click on This item was sold…….   And continue to answer the questions

You might also review information here.

[Carl]

If you tell the program that you did not rent or attempt to rent the property in 2020, the program will "FORCE" you to delete the SCH E. So indicate it was rented for 1 day only. The fact you have no rental income is irrelevant. But you do need to enter the digit "ZERO" in the rental income section. You can leave the rental expenses section completely alone if you like, and have no rental expenses to report.

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  2020". Select it. After you select the "I sold or otherwise disposed of this property in 2020" 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 if it's zero. Then you MUST work through the "Sale of Property/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 on some assets. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1 on some assets.

Basically, when working through an asset you select the option for "I stopped using this asset in 2020" 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.

[AASolo]

Thanks so much guys.  I really appreciate the insight and help.