Tax Reporting of Sale of Rental Property Converted from Personal Home

[eugenewinter620]

In 2005, I bought my home for $380.000.

In 2010, I converted it to a full time rental at which time the basis for the depreciation was set at $225.000 and the land value at $60.000 (total value of $285.000 - loss due to the real estate market in Florida). The straight line depreciation so far has amounted to about $60.000.

In 2019, I sold the property for $280.000.

Which figure should I insert into TurboTax as sales price: the gross price of $280.000 or the price for the building only = $220.000 ($280.000 minus $60.000 for the land)?

I would want to be sure that the depreciation, its recapture, and any losses are being handled correctly and that there is no discrepancy between my Return and the IRS reporting of the closing agent.

Thanks

[TomYoung]

In order to sell both assets - the depreciable structure and the non-depreciable land you do have to use the entire stated selling price minus selling expenses.  You allocate the sale proceeds between the two items.

[eugenewinter620]

Thank you very much for your prompt and informative response. However, I do not have a good understanding as to which number goes into which field. Are these two different transactions? Would you be so kind and provide additional advice about this? - Many thanks

[tagteam]

@TomYoung can answer your most recent question, but I just wanted to add a question of my own and also offer a tip.

First, if you actually sold the rental property in 2019, why are you entering (or trying to enter) the transaction at this point in time? Obviously, the return is not due until next April.

Also, TurboTax is terrible with respect to handling residential property converted to rental use in the year the property is sold. You actually need to enter the rental income, expenses, and depreciation and then indicate that you stopped using the property as a rental, but NOT enter a sales price in that section. The reason for that is TurboTax is incapable of using any basis other than the basis for depreciation that was previously entered as the basis for the sale (in this instance, that basis is too low since the FMV was lower at the time of conversion than the original cost).

Instead, you need to enter the transaction as a sale of business property. which will also generate the same form as the rental section but with the correct basis. In your case, that basis would be your purchase price of $380,000 plus any improvements and less any depreciation allowed (or allowable).

[eugenewinter620]

Thank you again. I am not making any final entries; just trying to estimate my 2019 tax burden. Your help is much appreciated.

[Carl]

Basically, if the cost basis (what you paid for it) is used for depreciation you'll report the sale in the rental section of the program. This will be true for about 90% of the people. So if the structure value of $225,000 plus the land value of $60,000 (which is $285,000) is what you paid for the property, then report the sale in the Rental & Royalty Income (SCH E) section of the program.

Otherwise, it gets reported in the investments section and you'll have to do some manual math to ensure you recapture all depreciation taken.

Regardless of which section you report it in, the end result will be the same if you do it correctly, with all the same forms generated as needed to report the sale.

Be aware that your cost basis is what you paid for the property, plus the cost of any property improvements you paid for during the time you owned it. Doesn't matter if it was a rental or not when you did this property improvements either.

[eugenewinter620]

Thank you for your helpful response. Unfortunately, I am in the group of 10% where the value of the structure was not the same as it was at purchase due to the burst of the real estate bubble. It looks like the key term in your reply will be doing the “manual math” and I hope I can accomplish it accurately. Thank you again.

[TomYoung]

" I do not have a good understanding as to which number goes into which field. "

Basically, you take the "net to you" sales proceeds and you divide it between "structure" and "land".  The "Sales Information" page within the TurboTax interview asks for the "Asset sales price", (the house), and "Land sales price".  

Of course your sales contract isn't split that way - so much for "the house itself" and so much for the "land it sits on" - so mechanically you might refer to the latest property tax bill for that split, but that method isn't dictated to you

[eugenewinter620]

Thank you. This is very helpful.

[bowefarms]

inherited house in 1998 lived in it till 2007 rented it from 2011 till 2017 then sold to tenant for $56089 for house and 22000 for land. in 1998 house was appraised for $111000 land land for $25315 for a capitol loss of -$58226.  Took $48768 from form 4797 from 2017 tax year. What do i do with the remaining loss of $-9458 in lost capitol loss?