Sold rental house. How to allocate the sales price & expenses between the land and asset?

[optca50]

Bought the house in 2014 and in that year when I did my taxes, I allocated the land value to be 26.6% of the sales price. On my most recent property tax bill the land value of the property was 37% of the net taxable value. Bought the house for $200,000, sold house for $400,000,did improvements of ~$70,000. The expenses involved in selling the house were $28,000. 

On TT Sales information page, how do I  "divide, or allocate the sales price & expenses between the land and asset" to determine "sales price, asset sales expense, land sales price, and land sales expense"? 

[DianeW777]

You can choose whether to use cost basis or fair market value on the date of the sale for each asset included in your rental house.

Here is an example that may help. It's not a difficult process but must be reasonable.

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:

1. Take the current basis of each asset against the total combined basis of all of your assets to figure out the sales price for each one; OR 
2. Determine a fair market value for each asset against the total value of all assets to figure out the sale price for each one. 

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. (Choices would also be fair market value on the date of the sale or adjusted basis on the date of the sale, which is cost less depreciation.)

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. If you have not used TurboTax, enter each asset exactly as it appears on your prior year return.

You might also review information here.

[optca50]

Does your example apply to the "your property assets" page? Some of the improvements I've made on the house are in that list of assets I've depreciated in the past (~$40,000). Some improvements/renovations I've made are after the tenant moved out (~$30,000) .

1)How do I account for the $30,000 of improvements after tenant moved out that I have not depreciated in the past? 

2) To clarify from your example, when TT is asking for "sales price of each item", I should total all my improvements and assign a percent value, e.g. 20% for improvements then when it asks for sales price of each item, I should assign it a value from the 20%?

Ex:  new cabinets are 10% and new plumbing is 10% = 20%

Thank you for your response!

[DianeW777 · Accepted solution]

Let's review each question:

1. How do I account for the $30,000 of improvements after tenant moved out that I have not depreciated in the past? Since this is an improvement you did not depreciate because the rental activity had ceased during preparation for sale this can be apportioned (house, capital improvements on depreciation) as part of the selling expenses.  This handles it appropriately to arrive at the correct gain.  To make it simple, you can simply add this to the selling expenses of the house itself assuming the improvements are not part of the land.  
2. To clarify from your example, when TT is asking for "sales price of each item", I should total all my improvements and assign a percent value, e.g. 20% for improvements then when it asks for sales price of each item, I should assign it a value from the 20%?  Ex:  new cabinets are 10% and new plumbing is 10% = 20% Yes, that is correct.

@optca50