You will report the sales information under the asset section under rental income and expenses. (see screenshots and step-by-step below)
Once
you have signed into your TurboTax Account (for TurboTax Online sign-in, click Here , then select "Take Me to My
Return"), type "Schedule e" in the search bar then select
"jump to Schedule e".
When it comes to the sale of your rental, if is important to determine the basis in the property (usually cost plus capital improvements less depreciation (less any casualty loss, if any)) because this will determine the amount of capital gain or loss. Rental income/expenses for the year (unless deprecation or expenses directly related to the sale) will not be included in your capital gain or loss calculation.
Additionally, when you sell your property, you must pay 25 percent recapture tax (also referred to as Section 1250 recapture) as well as regular state income tax on the depreciation you claimed. (Remember the IRS will assume that you claimed the correct amount of depreciation every year—this is true regardless of whether you actually claimed any depreciation on your tax return).
Two additional piece of information related to your rental property depreciation and sale:
When you are entering your rental information, you will have two dates to enter:
- Date of Acquisition: This is the date that you originally purchase the home
- Date of Conversion: This is the date you converted the property to a rental
The reason these two dates are important is you will use them to calculate your basis for depreciation and to determine your gain or loss on the sale of your rental property. TurboTax will guide you in entering this information.
Depreciable basis :In general, the adjusted tax basis of a principal residence is the cost of the property (i.e., what you paid for the property when you first purchased it), plus amounts paid for capital improvements, less any depreciation and casualty losses claimed for tax purposes. Improvements add value to the home, prolong its life, or adapt it to a new use. Regular repairs and maintenance are not included in the tax basis of the home. When a principal residence is converted to rental property, you need to know its basis for depreciation purposes. Its basis for depreciation purposes is the lesser of:
- The adjusted basis of the residence on the date of conversion, or
- The fair market value of the property at the time of conversion
Sale of Rental House : In order to calculate the capital gain or loss when you sell a residence that had been converted to rental property, you need to know three things:
- Your adjusted tax basis in the property (both at the time of the conversion and the time of the sale)
- The sale price
- The fair market value of the property when it was converted to rental property
If the converted property is later sold at a gain, the basis for purposes of determining the capital gain is your adjusted tax basis in the property at the time of the sale. If the sale results in a loss, however, the basis used is the lower of the property's adjusted tax basis at the time of the conversion or the fair market value when the property was converted from personal use to rental property. This loss rule ensures that any deflation in value occurring while the property was held as a principal residence does not later become deductible upon your sale of the rental property; a loss on the sale of a principal residence is not deductible. As usual, you calculate your capital gain by subtracting your adjusted basis from the sale price of the property.
To enter your rental sale under the rental section in TurboTax Online or Desktop, please follow these steps:
- Once you are in your tax return, click on the “Federal Taxes” tab ("Business" tab in TurboTax Home & Business)
- Next click on “Wages & Income” ("Business Income and Expense" in TurboTax Home & Business)
- Next click on “I’ll choose what I work on” (Jump to full list or see more income)
- Scroll down the screen until to come to the section “Rental Properties and Royalties”
- Choose “Rental Properties and Royalties” and select “start’ (or “update” is you have already worked on this section)
- If your rental property is listed, you will need to select "edit" to access this information. Otherwise enter your rental property information. (If you are entering your rental information for the first time, you will need to add the rental house as an asset under step 16)
- Is This a Rental Property or Royalty? - choose rental and put rental information and address
- What Type of Rental is This? - choose rental type (ie: Single family (home or unit where a single family lives))
- Do Any of These Situations Apply to This Property? - select sold (screenshot #1)
- Was This Property Rented for All of 2016? - answer questions based on your circumstances
- Property Ownership - select your ownership percentage
- Indicate if you Actively Participate - yes or no (If yes, this allows some of the passive losses to be used against passive income)
- Did You Pay Anyone $600 or More for Work Related to This Property? - yes or no
- Is Your Property in Any of These Designated Areas? - Usually "none of the above"
- Review Your Rental Property Rental Summary (screenshot #2)
- Select Sale of Property/ Depreciation section. Here is some additional information you will need to select under the sale of property section:
- About 3 screens in, if the house is listed under this section, you will select that you want to edit this property
- About 4 screens more, check box that you sold the property under "Tell us about this rental asset" (screenshot #3)
- For the special handling screen - say "no" (Please note that if you used FMV at the time of conversion to a rental for your depreciation (as opposed to adjusted basis), you will want to answer "yes" here and enter the sale under the sale of business property section (see below).)
- Home Sale - based on the information regarding your home sale, this property may qualify as the sale of your home.
- Sales Information - enter the sales price information (screenshot #4) You will need to allocate the net sales proceeds into asset sale and land sale. If your proceeds are not allocated, you can use the same percentage of asset and land from the original purchase for the sales proceeds allocation
If the property was not available for renting in 2016 or if your sale requires special handling, you will enter this sale as the sale of a business asset.
To enter this rental sale under the sale of a business property in TurboTax Online or Desktop, please follow these steps:
- Once you are in your tax return, click on the “Business" tab ("Federal Taxes" tab in Premier)
- Next click on “Business Income and Expense" ("Wages and Income" tab in Premier)
- Next click on “I’ll choose what I work on” (Jump to full list)
- Scroll down the screen until to come to the section “Less Common Business Situations” ("Business Items" in Premier)
- Choose “Sale of Business Property” and select “start’
- Select "Sale of business or rental property that you haven't already reported"
- Sale of Business or Rental Property - yes
- Enter all the information about your Rental Property Sale here
- Description - address of property
- Date acquired - original acquisition date
- Date sold - date of sale (should be on 1099-S)
- Total sales price - total sales price (should be listed on 1099-S)
- Cost of property (or tax basis) plus expenses of sales - original cost plus any capital improvements plus expenses of sales
- Depreciation taken on this property - total depreciation taken property when rental (Please note the IRS will assume that you have taken the correct depreciation on your rental property while your property was available for rent regardless of whether you have actually take it or not)
- What type of property is this? - select - Rental estate that I took depreciation on.
- Installment sales - no if not on installment sale
- 2 screens that show the summary of what you have entered for your property sale
- Sale of Other Business Property - Choose yes if any of these situation apply, otherwise choose no.
- You sold property that cannot be depreciated such as vacant land, mineral rights or inventory
- You sold business or rental property that you owed for one year or less
- You sold business or rental property at a loss.
- Total Gross Proceeds - enter your 1099-S sales information here (this could be the same amount that was reported earlier as sales price)
Click this link for further information about reporting the sale of a capital asset
For the sale of personal residence
You will not be
allowed to take a capital loss for a personal use capital asset. Also there is
no reporting requirement if the property meets the home gain exclusion (unless
you received a 1099-S or took depreciation on the home in a prior year).
You can take
the gain exclusion as long as you considered the home your "primary
residence" for 2 of the last 5 years. If you have a capital gain from
the sale of your main home, you may qualify to exclude up to $250,000 of that
gain from your income. You may qualify to exclude up to $500,000 of that gain
if you file a joint return with your spouse
To enter the sale of your home in TurboTax Online or
Desktop, please follow these steps:
- Once you are in your tax
return, click on the “Federal Taxes” tab ("Personal" tab in
TurboTax Home & Business)
- Next click on “Wages &
Income” ("Personal Income" in TurboTax Home & Business)
- Next click on “I’ll choose
what I work on”
- Scroll down the screen until
to come to the section “Less Common Income”
- Choose “Sale of Home (gain or
loss)” and select “start’
