How to report Sale of Previous Rental Property from out of state

[meanjeanslo88]

Hi, I had a rental property in another state with a partner.  In 2023, it was not rented at all because we were doing repairs and had evicted the previous tenant.  In 2024, repairs were completed and the property was sold.  Since this property was removed from 2023 return due to not having any income, I'm trying to figure out how to report it so that it shows as property sold in another state, cost of repairs (capital improvements $25k+), and regular expenses.

Based on a response I got last year when asking what to do with it since it wasn't being rented out during the repairs, I entered it in the Desktop version via this method:
Other Business Situations 

> Sale of Business or rental property that you haven't already reported

> "Yes" to Do all of the following apply?

Entered the description and sales information, however it never asks me for an address or the state in which the property is located

I have also tried entering it as a Rental but since there wasn't any rental income, having some difficulty.

This was always an investment property and I have never lived in the state in which it's located.
What's the property way to report this?

[DianeW777 · Accepted solution]

Yes. You are reporting it properly. Be sure to enter the depreciation when asked and your profit or loss will be reported correctly since the property is no longer part of your tax return. If you did not have a passive loss carryover, then you do not need to enter the rental assets and activity in your 2024 return. Continue as you indicated in your question - Sale of Business Property.

The state where the property is situated does require income tax to be paid to their state assuming that state has income tax.

• Do I need to file a state return? Nonresident filing requirements is the key.

State Returns - Assumes both states require income tax returns to be filed: 

1. Report the income on each state return that is from the nonresident state
2. Report it on your resident state and receive credit for taxes paid to another state.

Credit for taxes paid to another state is allowed by a resident state when the same income is being taxed to another state.  Your resident state does not want you to pay tax twice on the same income. The credit that is allowed will be the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state

In most cases complete your nonresident state first. This allows TurboTax to apply the credit to your resident return.

[meanjeanslo88]

On the 1099-S, they have Total Gross Proceeds as the total amount of the transaction (example: 100k) and then where it says If Multiple Sellers Complete Allocated Gross Proceeds: $50k (my 1/2 of transaction)

In Turbotax, which amount should I use?  Is it okay to enter my Allocated Proceeds?

If I'm supposed to use the $100k, where would I adjust for the 1/2 my partner received?

Thanks for your help!

[DianeW777 · Accepted solution]

Yes, enter your half of the proceeds only on your tax return.  If you want you can allocate the amount that belongs to your partner using the steps below.

Nominee Returns.  This is how the IRS knows what you are doing.

Generally, if you receive a Form 1099 for amounts that actually belong to another person or entity, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received).  You must also furnish a Form 1099 to each of the other owners. 

File the new Form 1099 with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. (Provided on the Form 1096)

• On each new Form 1099, list yourself as the payer and the other owner, as the recipient. On Form 1096, list yourself as the nominee filer, not the original payer.  The nominee is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.

The forms filed with the IRS should be the red copy so if you don't have a color printer, go to the IRS website and order the forms here: 

• Form 1096
• Form 1099-S