Level 2

Question

Sell of rental property

Forum|Forum|6 years ago
February 8, 2020
8 replies
79 views

I had a rental property since 2005 and used Turbo Tax to prepare my taxes since then. I sold this property in June 2019, though the last tenant's End of Lease was Dec 2018, so there was no rental income for all of 2019. 100% 2019 activity on this property was preparing the property to sale.

When entering this property in Turbo Tax for 2019, I checked I sold the property in 2019; checked No, this property was not rented all year; 0 (zero) Days rented at fair rental price; 0 (zero) Personal use during the year; and did not check I did not rent, nor attempt to rent this property at all in 2019. Is this the correct entry? If I checked this box I did not rent......... a statement pops up stating Since this property was not a rental at all in 2019, you should delete it as a rental. Before proceeding I would like a clarification.

ColeenD3

Level 15

That is correct. If you did not rent it in 2019, there is no reason to enter it in the Rental section. You would enter your information in the Sale of Business Property section.

To 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

A

arulli1948Author

Level 2

Should I include the total expenses preparing the property to sale in the Cost of Property (or Tax Basis) Plus Expenses of Sale field? All expenses occurred in 2019 and expenses included such items as Resale Certificate, listing fees with real estate broker, hazard insurance, utilities, maintenance and repairs, None of these expenses were listed on the Statement of Transactions for the sale of the property.

S

StratigosA08

Level 8

Yes, you should include those amounts you mentioned in preparing the property for sale in your cost basis. This will serve to lessen any gain on the sale. Resale certificate and real estate broker fees are added to basis, but hazard insurance, utilities, and maintenance are not costs of sale and they should instead be entered as rental expenses in the final year of the rental activity.

Carl

Level 11

You are absolutely correct to report this sale in the "Rental & Royalty Income (SCH E)" section of the program. The key thing is that you *DO* *NOT* *SELECT* the option for "I did not rent or attempt to rent this property in 2019". If you select that option, you will be *FORCED* to delete the SCH E from your 2019 return, and you don't want to do that.

For some scenarios if you indicate zero days rented, the program doesn't like that. If this happens to you, then indicate it was rented for 1 day and of course, zero days personal use. You'll be fine.

Reporting the Sale of Rental Property

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will ahve a selection on it for "I sold or otherwise disposed of this property in 2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets. You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset. Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically, when working through an asset you select the option for "I stopped using this asset in 2019" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.

S

Stevenbirn

Level 4

Hello, I saw your posting here and my question is close so I was hoping you can help me. I sold rental property in 2019 that is fully depreciated but when I input the sale in the rental section and the edit of the condo it does not reflect the depreciation in the net gain. Any idea what I am doing wrong? Thank you

ColeenD3

Level 15

Yes, if the expense qualifies.

Sales expenses include:

- commissions

- appraisal fees

- broker's fees

- legal fees

- advertising fees

- home inspection reports

- title insurance

- transfer taxes or fees

- geological surveys

- loan charges (points) or other fees paid on the buyer's behalf

Sales expenses do not include:

- mortgage payoffs

- home equity loan payoffs

- rent-back costs

- payoff to creditors

- property taxes

- home owner association fees

I

IKI

Level 2

I made a mistake in entering some of the allowable expenses related to the sale of our rental property, legal fees, brokerage, etc. How do I correct/edit these entries? I note that my Federal and State refunds increased as a result of these entries but I cannot find the 'quick entry form' that I used to enter these values so that I can edit/correct them. I use TT Premier.

M

MayaD

Alumni - Intuit

If you didn't file your return, follow the steps below to deduct the expenses from the sale of rental property:

Log in to your account.
Go to Federal Taxes.
Go to Wages and Income.
Scroll down to Other Business Situations and click show more.
Select Sale of Business Property and click revisit.

If you already submitted your return you need to amend to make any changes.

If your return is accepted, wait until your return has been fully processes and you received your refund ( if you are expecting a refund ), then amend your return.

Here's how you amend your return:

Sign in to your account.
Scroll down to Your tax return & documents , select 2019 and then Amend (change) return.
Select Amend using TurboTax Online.
Follow the instructions, your refund or tax due will change to 0. This is normal on amended returns.

Amended return can't be e-file, you need to print it and mail it in.

On the Tax Home web page when the Form 1040X for amending a 2019 tax return becomes available there will be a link - Amend (change) return. Form 1040X is expected to be available on 02/27/2020.

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Carl

Level 11

I am in total and complete disagreement with Coleen's response. If you delete the SCH E from your 2019 tax return, you find yourself having to do a lot of math yourself, and the probability of human error is extremely high. Additionally, if you don't have the 8582 and both IRS Form 4562's for that property from your 2018 return, you're screwed.

Since you did not convert this property from rental to personal use on your 2018 tax return, this will create it's own problem with your 2019 return, and it won't be the only problem. I'm not getting into the details of the multiple problems it will create. I could write a novel.

But if you've already deleted the SCH E, the only possible way to get it back now is to clear your return and start all over from scratch so you can import it again from your 2018 tax file.

The property remains classified as rental real estate on your 2019 tax return.

did not check I did not rent, nor attempt to rent this property at all in 2019. Is this the correct entry?

Yes, do not check that box. Just continue on through. Then like you said, days rented is zero. Rental income is zero. (you have to enter a digit in the rental income seciton, even if that digit is a zero.)

For rental expenses, enter nothing. But you must work it through for the 1098 information which you will need to enter. (Only if you actually received a 1098 for this property.)

You'll report the sale in the "sale of assets/depreication" section. The program will then take care of the depreciation recapture for you automatically, as this removes any possibility of human error on the recapture math, provided you follow the below guidance on reporting the sale.

- Cost incurred in preparing the property for sale are sales expenses. These usually get added to your cost basis.

- Cost incurred in dealing with the loan are subtracted from your gain. Not only does this include costs associated with paying off your own mortgage on the property, but you will also have amortized costs (most likely shown as such on the 4562) of which you can totally deduct the amount remaining to be deducted, from your gain.

Reporting the Sale of Rental Property

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will ahve a selection on it for "I sold or otherwise disposed of this property in 2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets. You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset. Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically, when working through an asset you select the option for "I stopped using this asset in 2019" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.

C

cc11jimmy

Level 4

I noticed 2 different filing results depend on where the sales information is populated. Which one is correct?

If sale of home info is populated in the Less Common Income section and under Sale of Home, form 4947 is not generated. Everything is reported on Schedule D and Form 8949 (with Code H for the exclusion). Sale price is not required to be broken out between property vs. Land.

If sale of home info is populated in the Rental Income section and under Sale of Property/Depreciation, form 4947 is generated. After asking Asset sale price, Land sale price is also required to be populated.

Is form 4947 required? In the Sale of Property/Depreciation section is asset price the total sale price and Land price is part of it? Does it matter how it is allocated? It seems only total gain will impact the tax? Thank you.

@Carl11_2

Carl

Level 11

Does it matter how it is allocated?

Absolutely, when reported in the Rental section.

It seems only total gain will impact the tax?

Of course. But when reporting in the Rental section of the program, allocation of sales price matters. If you show a gain on one asset and a loss on another, the depreciation recapture *will* *not* be correct, and in most cases the program just flat out can not handle that. Lets use two depreciable assets as an example, assuming both property improvements were done in the same tax year.

New roof, cost of $10,000 depreciated over 27.5 years reduces the cost basis by roughly $3,640 to $6,360 after 10 years.

Bath & Kitchen remodel, cost $10,000 depreciated over 27.5 years reduces the cost basis by roughly $3,640 to $6,360 after 10 years.

You sell the assets which you paid $20,000 for in total, for $25,000. That's a $12,280 gain of which $7,280 of that gain is recaptured depreciation.

You allocate $18,000 of your sales price to the roof. Subtract the $3,640 from the original $10,000 you paid and you get an adjusted cost basis of $6,360. So $18,000 minus $6,360 give you a gain of $11,640.

Now allocate the remaining $7,000 of your sales price the the kitchen/bath. Your original cost of the kitchen/bath upgrade was $10,000, minus the $3,640 from that gives the adjusted cost basis of $6,360. So your gain on that is $40. Where's the remaining $3,600 of depreciation you're required to recapture on this specific asset? It's just "gone". The math itself is correct, so the program doesn't see any "error" because mathematically, there is no error to catch. But legally, you've not recaptured all the depreciation as required by law.

While the program may not catch this in it's "final review" error checks, you can bet the IRS will.

2

2019debi

Level 2

I did not sell the property I am living in it for entire 2019. It was a previous rental.

2

2019debi

Level 2

I am no longer renting my property. I am currently residing in this former rental for almost two years. I need to delete any reference to rental income property. How do I deactivate this category from my return. The home is owner occupied. Thanks much

E

ealawrence

Level 2

where do I find the section regarding sale of rental property and expenses associated with preparing for sale?

DMarkM1

Level 15

Under the "Income & Expenses" tab you will find the "Rental Property..." topic. Within that topic you will find your rental property and edit it. The "Sale of Property/Depreciation" section is where you will be able to indicate that you disposed of the property and enter the details of the disposition.

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C

Confusedreturn

Level 2

DMarkM1, was your response for a rental property that was not rented in 2019 (sorry, there are multiple scenarios in this thread). If so, it is opposite of what ColleenD3 (also a tax expert) has advised to do in this same thread. Per her reponse, the sale should be entered in the Sale of Business Property and not in Rent and Royalties since the property was never rented in 2019.

D

dcallantine

Level 2

My wife had her property since 1970, In 2010 she moved in with me and she rented her house to her niece. In Oct 2018 the niece moved out and my wife and I started to refurbish the house for sale. We did not rent it in 2019 but spent our time preparing it for sale. In Oct 2019 it sold. How is this entered in Turbo tax when I am told to take it out of rental property status? We did deduct expenses incurred in 2018 in the 2018 tax returns when we did receive rent income.

M

Matche87

Level 2

Would Washington State Excise Tax be considered a Sales Expense for the purpose of reducing my cost basis on the same of my rental property?

ColeenD3

Level 15

Although excise taxes cannot be deducted on your tax return, they can help reduce the value of the sale itself. In fact, excise taxes can be subtracted from the final sale price when listed on your tax return.

WA Excise Tax