Sold rental property and have some questions

[jagermeister]

I sold a rental property in 2019 and have some questions about entering the sale in Turbo Tax.

First, I recorded the sale of the rental property in the ‘Your Property Assets’ section.  Along with the main property, I also having the following assets listed:

-Refinancing fees

-Washing Machine

-Dishwasher

So, from what I've read, I have to go through each of those assets and enter that I have ‘disposed’ of them.  Is that correct?  In addition, I read that if I had a gain on the main property, I have to show a gain for each of the assets, even if it is just $1?

So, when going through each of the assets, TT asks for the asset sales price.  What I’m doing is showing a gain of $1 for each asset.  For instance, the cost of the washing machine was $261.  So I’m entering a sold price of $262.  TT does its calculations and tells me I have a gain of $247 for the washing machine and increases the amount of taxes owed.  That doesn't seem right to have that large of a gain for an old appliance. 

Also, if I have to enter a sales price of each asset, do I subtract that amount out of the sales price of the property?  For instance, I sold the property for $250k.  Do I enter the sales price of the property as $250k-$262?  And then of course minus the sales price of the refinancing fees and dishwasher?

Thanks

[ColeenD3]

Did you have these assets listed separately from the beginning? If not, they are part of the sale of the main house. O have looked through Pub 544 Sales and Disposition of Assets and can't find the reference for gain on those other assets. Did you have a reliable source for that?

[Carl]

What I’m doing is showing a gain of $1 for each asset. For instance, the cost of the washing machine was $261. So I’m entering a sold price of $262. TT does its calculations and tells me I have a gain of $247 for the washing machine and increases the amount of taxes owed. That doesn't seem right to have that large of a gain for an old appliance.

That is correct. You took $246 of depreciation on the washer is years past. You now have to recapture that depreciation and pay taxes on it. You don't have a choice.

Do I enter the sales price of the property as $250k-$262?  And then of course minus the sales price of the refinancing fees and dishwasher?

Yes. But it's more detailed than that. On the sale of the property you have to allocate your sales price to the land and the structure. So if your cost basis on the entire property itself as listed is $150K you have to allocate your sales price of $250K across the land sales price and the structure sales price.

So if your land cost basis is $50K and the structure cost basis is 100K you could allocate $60K of your sales price to the land (shows a 10K gain) and the remaining $190K to the structure which would be a $90K gain on the structure.

Remember, land is not a depreciable asset. So you will not change your land sales price *for* *any* *reason*.

Now of the $190K sales price of the structure, Subtract $262.00 from that and allocate that $262.00 to the washer.

So your structure sales price would be $189,738.00 (which still shows a gain) and your washer sales price would be $262.00 which also shows a gain.

[Carl]

Do I enter the sales price of the property as $250k-$262?  And then of course minus the sales price of the refinancing fees and dishwasher?

Yes. But it's more detailed than that. On the sale of the property you have to allocate your sales price to the land and the structure. So if your cost basis on the entire property itself as listed is $150K you have to allocate your sales price of $250K across the land sales price and the structure sales price.

So if your land cost basis is $50K and the structure cost basis is 100K you could allocate $60K of your sales price to the land (shows a 10K gain) and the remaining $190K to the structure which would be a $90K gain on the structure.

Remember, land is not a depreciable asset. So you will not change your land sales price *for* *any* *reason*.

Now of the $190K sales price of the structure, Subtract $262.00 from that and allocate that $262.00 to the washer.

So your structure sales price would be $189,738.00 (which still shows a gain) and your washer sales price would be $262.00 which also shows a gain.

[jagermeister]

@ ColeenD3

No, these weren’t listed separately from the beginning.  They were added various years after the property was a rental.  Basically they were replacement appliances for ones that broke.  As for the source I found stating I had to show a gain for all assets, it was another post here on the TT forums and is located at:

 https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/sale-of-rental-proper...

@Carl

That makes sense about recapturing the depreciation on those assets.  I’ll go ahead and continue with that.

Thanks for everyone’s help.  I’m sure I’ll have more questions.

[Carl]

I've not taken the time to narrow it down to a specific cause or causes yet. But I've run several scenarios in the past where there are multiple items listed in the assets section. TTX used to claim (and may still claim for all I know) that the program could "handle it" if you just showed the main property asset with all the sales data, and the other assets as sold for $0. I've found that to be flat out wrong.

When you show a gain on some assets and a loss on others, it totally screws up the SCH D and the 4797. It does the math all wrong and when I was running scenarios a few months ago the program never caught it's mistakes, because it didn't see any mistakes. You have depreciation recapture on the main structure reported sold at a gain, and no recapture on those assets sold at a loss for $0. I found it would catch the problem if one of those assets showed a prior 50% special depreciation allowance claim. But while the program would "catch" the error and not let you e-file, the message presented was cryptic and had nothing to do with the "real" problem.

It would be like if your car had a flat tire, and the check engine light came on. Huh? It was a real head scratcher when I was initially trying to understand the problem. Damn near scratched myself bald!

[buffysings]

I am also in the same situation of a 2019 sale of a rental property and based on instructions, have added all of the items I purchased as assets and listed assets price and assets sold as $0 since those items were sold with the property.  So am I doing this wrong?

Also, I understand that I can add certain charges on my HUD statement at the time I purchased the property towards the cost basis to lower my capital gains.  So do I add these charges to the original price of the property when I purchased it?