topic How do I dispose of a rental property asset? Just delete? in Investors & landlords

How do I dispose of a rental property asset? Just delete?

grazer — Sat, 01 Jun 2019 03:17:26 GMT

Using Premier, how do I dispose of a rental property asset? Just delete? I purchased a new washer and want to remove the previous washer asset. Thank you!!

No. Don't just delete. Click the edit button and enter th...

PaulaM — Sat, 01 Jun 2019 03:17:27 GMT

No. Don't just delete. Click the edit button and enter the date you disposed of it. This calculates the asset depreciation up until the date you used it and eliminates the schedules/worksheets that no longer apply. Do this for any asset you dispose of in the future.

Then you can add the new washer and begin depreciating it.

For anyone reviewing this in the future to get to this po...

chris_vandoren — Sat, 01 Jun 2019 03:17:29 GMT

For anyone reviewing this in the future to get to this point in TT you must press continue after the Edit screen. After you retire the asset you can calculate the unused depreciation and list that as a misc expense. TT MISSES THIS IMPORTANT DEDUCTION WHEN YOU RETIRE AN ASSET

Re: No. Don't just delete. Click the edit button and enter th...

fnasser1 — Thu, 06 Feb 2020 13:19:19 GMT

I'm trying to figure this out. I do not have a date for disposing function after pressing the edit button. Can you advise?

Re: No. Don't just delete. Click the edit button and enter th...

JamesG1 — Thu, 06 Feb 2020 19:02:35 GMT

You need to dispose of the property by telling the software how and when it was disposed. Follow these directions.

Down the left side, click Federal.
Click on Income & Expenses.
Under Your income and expenses, scroll down to
Rental properties and royalties, click Edit/Add.
Do you want to review your rental?, click Yes.
Under Rent and Royalty Summary, click Edit.
Click Update to the right of Assets/Depreciation.
Do you want to go directly to your asset summary?, click Yes and Continue.
Click Edit to the right of the assets to be disposed.
Go through several screens until you get to Tell Us More About This Rental Asset.
Click on This item was sold…….
And continue to answer the questions.

Re: No. Don't just delete. Click the edit button and enter th...

ednamanager — Mon, 25 Jan 2021 13:59:22 GMT

Turbotax makes it very difficult to report sale of a rental home. One of my "assets" was a roof I am depreciating and I cannot figure out what to put in the boxes relating to price of sale of this "asset".

You need to make this process easier. This is the first time I am having to take my taxes to an accountant after many years with Turbotax.

Re: No. Don't just delete. Click the edit button and enter th...

DianeW777 — Mon, 25 Jan 2021 15:13:22 GMT

The IRS requires that the selling price be proportionately prorated to arrive at a selling price for each 'piece' of a rental property since many assets can be placed in service at different times, such as your roof.

The selling price should be prorated for each asset then entered for each asset when you indicate they were sold or disposed of. You will not lose the remaining depreciation because you will use the remaining basis against the selling price to determine gain or loss.

To figure out the selling price for each asset:

Take the current basis of each asset against the total combined basis of all of your assets to figure out the sales price for each one; OR
Determine a fair market value for each asset against the total value of all assets to figure out the sale price for each one.

Re: How do I dispose of a rental property asset? Just delete?

Carl — Mon, 25 Jan 2021 16:37:31 GMT

This is exactly why I do my best to avoid listing small rental assets separately. Things like washer's, dryers, A/C units, refrigerators, etc. *WILL* break in a relatively short time and create additional paperwork that can be avoided.

It's best, when you purchase a rental property, to just leave all that tiny stuff included in the original cost basis (your purchase price). If down the road you need to replace a small asset, then instead of capitalizing/depreciating it, use safe harbor de-minimus and expense it. That way, you're done with it. Forever.

When you have a depreciable asset break on you and it's time to throw it out, work through the asset in the Assets/Depreciation section and indicate that "I stopped using this asset in 20nn". In addtion to being asked for the date you stopped using it (or date of disposition) you'll also be presented a screen that asks "Special Handling Require?". You "MUST" click the YES button on this screen. If you click NO then you will be "FORCED" to enter sales information. If the item broke and you threw it out (as is usually the case with small appliances) then you did not sell it. So you must select YES on the "Special Handling Required?" screen.

Then, if the program is working correctly, any depreciation not already taken on that appliance will be included on line 19 of the SCH E. If it's not, then you can enter the amount of as-of-yet unclaimed depreciation yourself as an expense in the rental expenses section.

Take note that you will "NOT" under any circumstances and with no exceptions, delete this asset from your 2020 tax return. The asset should not be imported into your 2021 return next year. However, if the asset is imported next year into your 2021 tax return, that's usually for a reason. The number one reason being that the program incorrectly imported it. Next, it's because the tax filer did not correctly or completely report the disposition of the asset.

Re: No. Don't just delete. Click the edit button and enter th...

LB641 — Thu, 09 Sep 2021 17:12:24 GMT

Reading the answer, raises a question regarding a sale of a vac rental we sold this year. We will list the house as a sale and it's price, however we are told that the sale price has to be reduced by the combined sale price of each individual asset. IE House sold for 150K. However there are 10 assets. So we have to "sell" each asset too? And list a sale price of lets say $1 each, so the sale price of the home would be $10 less, as $10 is for the sale of assets? I have to sell every asset?

And what do I do for assets that we disposed of? Threw away, as they were no good, and useless?

Which it was easier to just list the sale of the vac rental, and the price we received, which obviously would include things like the roof, water heater, window tinting, dish washer, etc. Who actually sells a home minus those items?

Re: No. Don't just delete. Click the edit button and enter th...

Carl — Fri, 10 Sep 2021 01:26:56 GMT

When you sell property, particularly rental property and you have multiple assets listed in the asset/depreciation section for that property, then the sales price of each individual asset must add up to the total sales price.

So if you sold the property for $100,000 and included in that sale the separately listed rental assets of a new roof and new central air the price of all three assets must add up to $100,000. Example:

Rental property sold for $90,000

New roof sold for $7000

New A/C sold for $3000

Total sales price: $90,000 plus $7000 plus $3000 equals $100,000

Take note also that if you sold at a gain, then you must show a gain on all assets - even if that gain is only $1 on some assets.

Likewise, if you sold at a loss then you must show a loss on all assets - even if that loss is only $1 on some assets.

If you show a gain on some assets and a loss on others, the program flat out can not and will not handle it correctly. It totally screws up the depreciation recapture and your SCH D and/or 4797 will be wrong. To top it off, the TTX program will *NOT* catch the errors since "mathematically" there are no errors to catch.

Re: No. Don't just delete. Click the edit button and enter th...

pdedes — Sun, 06 Feb 2022 16:07:22 GMT

Related to that, I sold vacation rental in October 2021. If six months prior to selling the property, I clean out old assets and dispose of them in March 2021. In TTX, I edited each asset and marked them as disposed of in March 2021, and did the "Special Handling" option as mentioned previously. Do these disposed of assets still need to show a sales price at least $1.00 more than I paid for them (their Cost) to make TTX calculate the recapture correctly? These assets were all fully depreciated prior to 2021. I realize that we have to do this to make TTX happy, not necessarily for the sake of the IRS. It would seem to me though, that the IRS may ask why I sold an old asset for more than I bought it many years ago, especially if I disposed of it six months prior.

Re: No. Don't just delete. Click the edit button and enter th...

Carl — Sun, 06 Feb 2022 16:29:19 GMT

I edited each asset and marked them as disposed of in March 2021, and did the "Special Handling" option as mentioned previously. Do these disposed of assets still need to show a sales price at least $1.00 more than I paid for them (their Cost) to make TTX calculate the recapture correctly?

No. You have already "disposed" of them prior to the sale. You can't "sell" that which you have already disposed of an no longer have.

There are many ways to "dispose" of an asset. One way is to sell it. In such a case, when you click NO on the "Special Handling Required?" screen, you are forced to enter sales information, as it's assumed you actually sold the asset.

Now, if you read the information on the "Special Handling Required?" screen, it lists other methods of disposition that don't require sales information. You'll see there things like the asset was destroyed, lost, stolen, given away, etc. When any one of those apply, you click YES and you will not be asked for sales information. You are done with that asset forever.

Re: No. Don't just delete. Click the edit button and enter th...

LB641 — Sun, 06 Feb 2022 18:32:39 GMT

The $1.00 selling price per asset, that goes along with sale of the vacation rental - It's not $1.00 over what it was purchased for originally -, is it not just - at least a sales price of $1.00? No one sells the home without the roof, and typically the appliances stay with the home. Who actually sells these items separately? Same with the landscaping items or a fence.

Re: No. Don't just delete. Click the edit button and enter th...

Carl — Sun, 06 Feb 2022 18:57:38 GMT

Since you sold at a gain, the selling price of each asset must be "at least" $1 more than it's cost basis. Period. Otherwise, all prior depreciation taken on the asset will not be recaptured. When you add up the selling price of all assets, that has to equal your total selling price as shown in your sales contract.

Re: No. Don't just delete. Click the edit button and enter th...

LB641 — Mon, 07 Feb 2022 13:39:09 GMT

Thank you… but I want to fully understand and do this correct.

Upon selling the vacation rental, I have to sell the 10 year old roof, for more than I paid 10 years ago?

And I have to sell the TV, Fridge, Stove, Hot water heater (and landscaping items) for more than I paid 10 years ago?

My first question, who would believe anyone could sell a 10 year old worn out item, for even 1 dollar more than it was at new, 10 years ago? I like being honest and truthful, and wonder if even the IRS would believe anyone could get more for a 10 year old worn out item, let alone would the home buyer? These items aren’t even in the closing docs. I’m wondering would I or anyone pay full price plus 1 dollar for a 10 year-old or even older item(s). Just trying to learn and understand 😊. Appreciate the help. Guess the IRS expects this oddity? Is disposing of the item, prior to the sale, more preferable? Thank you

Re: No. Don't just delete. Click the edit button and enter th...

Carl — Mon, 07 Feb 2022 15:15:08 GMT

Upon selling the vacation rental, I have to sell the 10 year old roof, for more than I paid 10 years ago?

"You" said you sold at a gain. So yes.

And I have to sell the TV, Fridge, Stove, Hot water heater (and landscaping items) for more than I paid 10 years ago?

Yep.

My first question, who would believe anyone could sell a 10 year old worn out item, for even 1 dollar more than it was at new, 10 years ago?

Bottom line. If you show a gain on some assets, and a loss on other assets, then your depreciation recapture will be wrong. The TTX program will not catch it as an error, because mathematically there is no error. But the IRS will catch the fact that all prior depreciation was not recaptured. Usually 3-5 years down the road. Sometimes even longer. When they do catch it, the back taxes, fines and penalties will not be cheap. It's your call.

Re: No. Don't just delete. Click the edit button and enter th...

LB641 — Mon, 07 Feb 2022 16:31:15 GMT

I understand what you are saying, and I appreciate your time, and effort to help me understand the concept. It's the logic that apparently is getting in my way, and this is a first time, and not something I have done before. I am saying to myself, these assets in some cases are 10 - 12 years old. Trying to wrap my head around how the IR S, or anyone else, including the buyer, would believe that I could sell these items/assets, at full price (original cost) back 10+ years ago. Then add a $1. Are they really worth the original cost after 10+ years of use? And who would pay that original cost? Perhaps this is more of a how the program works, vs the logic of what an item is worth after 10+ years. Thanks - Just want to enter the data correctly, and stay off the IR S-radar. Sounds like disposed of, in some cases, is an easier way, and the program still handles it. Much Thanks - By the way, meant to ask, do I need to do this for all of the assets that are no longer being depreciated, as they have been fully depreciated. or just the ones still being depreciated? Thanks

Re: No. Don't just delete. Click the edit button and enter th...

Carl — Mon, 07 Feb 2022 16:31:07 GMT

It's the logic that apparently is getting in my way,

When it comes to taxes you're dealing with a government entity here. Since when has the IRS ever used logic? 🙂

Re: No. Don't just delete. Click the edit button and enter th...

pdedes — Mon, 07 Feb 2022 18:00:00 GMT

LB641,

I feel your pain and frustration. I have been a TTX user for nearly 20 years, and it has faithfully been tracking my rental properties and other financials. In 2021, I sold 5 of my properties and am facing the issue you and others have described over the past couple days (I being one of them). The key thing I have taken away from Carl's responses is that it is the TTX program, not the IRS, that does not properly handle the depreciation recapture of the assets associated with a property. We have to play with the sale price of each asset to convince TTX to report properly. And yes, doesn't seen right to sell a 10-year-old roof for more than you paid for it, just to get TTX to work right. If TTX could at least provide a suggested breakdown of sale price in these situations, they could protect their customers for what Carl warns about 3-5 years down the road. I wonder if you opt to have TTX review your return for a fee, if they would catch/correct the problem. I also wonder how an accountant would report this. I doubt they have to trick the system this way.

Re: No. Don't just delete. Click the edit button and enter th...

Carl — Mon, 07 Feb 2022 19:38:05 GMT

I also wonder how an accountant would report this. I doubt they have to trick the system this way.

An accountant would simply show the rental property and all assets as "removed for personal use" on the closing date of the sale. (Perfectly doable in TTX) and then figure the total amount of depreciation taken on all assets, since depreciation stops on that date.

Then they would enter the sale as a single transaction so that total gain would be shown, and total depreciation taken would be recaptured. This is also perfectly doable in TTX after you show the property and all assets converted to personal use on the closing date of the sale. You add up the total amount of depreciation taken on all assets up to the closing date/conversion date. Then you have that "magic number" you need (total depreciation taken on all assets.) Then you report the sale in the "Sale of Business Property" section where you only need to enter the total cost basis of all assets combined, total depreciation taken on all assets combined, and total sales price of all assets combined.