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Level 2

Sold rental property

We bought a house in 2006 as a rental for 360K we sold the rental for 405K in 2020. we had a loss every year on the property. I am doing my taxes and it is taking the 400 and acting like it is all income and only reducing 100k. What am I doing wrong? When I go the the sale information section I am not sure how to or what to put in the assets of sale and expenses and the sale and expenses  of land. 

Lastly we put a lot of money in the house to sell it, new appliances, floor, counters, bathrooms  and everything.  Shouldn't that be deducted somewhere in the sale prices?  Help I don't want to do this wrong. Seems like I am paying the Fed and State over 50K for a house I only made maybe 40K on if that.

2 Replies
Expert Alumni

Sold rental property

It is unclear what happened and what you expected to happen. 


1) You bought it for $360k and sold for $405k for a "gain" of $45k.

2) I don't know where the $100k you are talking about fits in.

3) You had 14 years of depreciation which I don't see in this calculation.

4) Any improvements made in 2020 would be added to the basis and will reduce your gain.


The main issue is the depreciation. Even if you never took it, you still have to recapture (pay taxes on) it.

Level 4

Sold rental property

A few things:


The original cost of $360k should have been allocated between building and land.  Whatever was allocated to building would have been depreciated over 27.5 years, whatever was allocated to land does not depreciate, but you now add to your cost basis for this sale. If the total amount had been treated as the depreciable asset, you would have depreciated about one half by 2020, so your net cost basis would be about $180k.


Anything you added to the property will also be added as cost, but you should have added each the year these items were purchased, which means those items would also have been depreciated, but you may have expensed those items if they were repairs.


All the expenses of the sale will add to your basis also include these in cost of sale of the property if they were not put in until the sale.


Check form 4797 part III for the sale to see if these items show on there correctly.


Lastly be sure to check form 8582 from prior years to be sure you received the tax benefit of the loss, if you did not, this suspended loss will now be "freed" up to offset gain on this sale - it is no longer suspended, so check your current 8582 to see the carryforward of any suspended losses.


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