First, I need to make sure I understand one thing. Are you saying the asset did not transfer from your 2016 turbotax file into your 2017 turbotax file?
If this is for business property reported in the Business Assets section, you'll find it on the 2016 IRS Form 4562 that has that asset listed on it. There are three 4562's in the package. You want the one that prints in landscape format specifically titled "Amortization and Depreciation Report". If you still have TurboTax 2016 installed on your computer and need to know how to get the specific 4562 you need, just let me know. It's also important to note that a part of the depreciation that needs to be included, if the asset was "in service" in 2017, will also include the allowed depreciation taken in 2017 prior to you selling it.
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Hi Carl thanks for answering I have my depreciation and have completed for the schedule E, now I am working on the actual sale of business property, they ask you for total sales, total cost and depreciation.......what figure do they want there since nothing transferred to that form, my depreciation is completed on Schedule E to the point of sale, now I'm working on the sale of business property. thanks again!
PS I have had this rental since 1991 so what depreciation do they want me to use for the sale? thank you
Why are you reporting this sale in the "Sale of Business Property" section, and not the Rental & Royalty Income (SCH E) section? I ask, because there are valid reasons not to report it in the rental section.
Basically, if you go back to the rental section and work through each individual asset again, the first or second screen for that asset will show the amount of all the depreciation taken in prior years. Then when you get to the screen that shows you the depreciation for 2017 you add the 2017 depreciation to the prior year's total depreciation, and that will give you the total depreciation taken on the asset which you have to recapture when reporting the sale.
If you just report the sale in the rentals section though, the program will take care of this for you automatically. However, there are situations that could have occurred in the past, which would result in incorrect figures being used if reported in the rental section.
For example, if the property was your primary residence for the first 2 of the last five years you owned it prior to the sale, then the program will handle it correctly. However, if the property was your primary residence the last two years you owned it prior to the sale, then the program will not handle it correctly if you report it in the rentals section. (It doesn't properly figure the exemption percentage.) In such a case, you have to report it in the "Sale of Business Property" section of the program.
Hi Carl thanks for all the info, it's 1:00 a.m. here been working on this almost 12 hours and I don't know if I will be making any sense...........will get back to you tomorrow when I'm more sensible.........good night Carl and thank you again for helping me out.....God sent me an Angel!
Hi Carl back at it and I see where I got off, my question now is what do I do for each asset in giving it a cost basis such as roof and windows? I depreciated these items but sold the whole house not just the windows and roof, what value do I put for these? It is asking for sales price and sales expense? can you please help me out again.............thank you
Here's the basics on reporting the sale of rental property. It's not step-by-step, as much as it is guidance. But it should be sufficient so that you report it correctly and more importantly, report it with the TurboTax program correctly.
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 2017". Select it. After you select the "I sold or otherwise disposed of this property in 2017" 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 2017" 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.
Hi Carl or whoever can help,
I have a follow-up question whether we can report only a fraction of the accumulated depreciation after the sale of a rental property.
In my case, the depreciation calculated by TurboTax throughout the years was too inflated. They did not help my yearly rental income as it always ended up in the negative.
May be this is a long shot but it does not hurt to ask the experts.
Finally, would a tax accountant/lawyer help with my case?
Regards,
-Omar
In my case, the depreciation calculated by TurboTax throughout the years was too inflated.
I doubt it, unless you entered incorrect information into the program. What makes you believe it's inflated? Convince me.
You are required to recapture the depreciation taken, or the depreciation you "should" have taken; whichever is higher.
Otherwise, to change the depreciation requires filing IRS Form 3115-Change in Accounting Method. This form is not simple by any stretch, and professional help is recommended if you pursue this path. Especially if your state taxes personal income.
Hi Carl,
Thank you for your prompt reply.
I did not mean that TurboTax's calculation was wrong; I wish I had the capability or maybe the knowledge to decrease the depreciation in my previous years filings so that I pay less taxes after the sale of this property.
I also have another quick question that I stumbled on while populating the fields for the sale of this property. I was asked whether it was a business or investment. I have a regular job so this must be an investment I presume. Please confirm.
Thanks,
-Omar
If it was a rental property that you were actively involved with then it is a business. As far as the depreciation is concerned, you should go back and amend any return that reported more depreciation than was allowed. If you don't do that, the next best thing would be to report the depreciation you deducted when you report the sale of the property.
I wish I had the capability or maybe the knowledge to decrease the depreciation in my previous years filings so that I pay less taxes after the sale of this property.
I know what you mean and where you're coming from on that. It's the reason I keep my depreciation as low as a legally can. The law basically reads that you must recapture the *higher* of depreciation taken, or depreciation you should have taken. So if one claims less depreciation than they were required to, or no depreciation at all, you still have to recapture the depreciation you "should" have taken.
. I was asked whether it was a business or investment. I have a regular job so this must be an investment I presume. Please confirm.
It's an investment which gets reported on SCH E. For residential rental property to be classified as a business and reported on SCH C has a number of requirements which most landlords don't meet. Even a fair number of AirB&B and VRBO property owners don't/can't meet the requirements to be classified as a business.
One major difference with treating rental property as a business that gets reported on SCH C is the depreciation time frame. Residential real estate that qualifies as a business is depreciated over 39 years on SCH C, while *normal* (for lack of a better word) residential rental real estate is depreciated over 27.5 years on SCH E.
When you have property thats been reported on SCH E for a few years, become qualified as a SCH C business, doing the switch from E to C (or vice versa) is an absolute nightmare dealing with the different depreciation schedules between SCH E and SCH C.
Thank you ThomasM for your helpful response.
You wrote:
"the next best thing would be to report the depreciation you deducted when you report the sale of the property."
You meant: "...the accumulated depreciation...." that TurboTax has compiled until the sale of the property.
Please confirm or clarify.
Regards,
Please confirm or clarify.
All depreciation taken for the entire time you owned the property must be recaptured in the year of the sale. Basically, the law reads (paraphrased) you must recapture the "higher" of all depreciation taken, or the depreciation you should have taken.
Hi Carl,
I have a follow-up on this particular portion of our exchange:
In my case, the depreciation calculated by TurboTax throughout the years was too inflated.
I doubt it, unless you entered incorrect information into the program. What makes you believe it's inflated? Convince me.
=======
I went over the taxes of my previous years and I see a depreciation discrepancy that I hope you will be able to clarify.
The way I manually computed the depreciation is as follows:
I took the cost of land and divide it by 27.5.
Let's assume cost of land is $200,000 then depreciation should be: $7272.00
The property was rented for 7yrs 6months so the accumulated depreciation should be: $7272.00 x 7.5 = $54,545.45
If the above method is correct then I must have input incorrect information that inflated the depreciation.
Regards,
The way I manually computed the depreciation is as follows:
I took the cost of land and divide it by 27.5.
You have used what the IRS calls an "impermissible method" to compute depreciation. Since you did this for more than 2 consecutive years you will need to file IRS Form 3115 to fix this. While the TTX program does include the 3115, it is *NOT* simple by any stretch of the imagination. Therefore, you should seek professional help. This is especially important if your state taxes personal income, because this is going to be a double-whammy for you. By all means, please seek professional help.
While possible, I doubt you'll be able to get time with a CPA before the Apr 18 tax filing deadline. So you may want to file an extension. Keep in mind that only gives you an extension to file. It does not give you an extension to pay, if any taxes are due. So if you think you may owe taxes, you still need to make an estimated payment before the Apr 18 deadline. You can pay on line if you want, and need to, at www.irs.gov/payments. ***PRINT YOUR RECEIPT!!!***
Three things to keep in mind here when dealing with the IRS:
1. You are guilty until proven innocent.
2. The burden of proof lies on the accused (that would be you), and not the accuser.
3. If it's not in writing, then it did not occur.
So I stress again, PRINT YOUR RECEIPT regardless of the method you use for paying any estimated tax due, if you deem an estimated payment necessary.
The correct way to figure depreciation for residential rental real estate:
IRS Publication 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf
Use the MACRS worksheet on page 36.
For line 6 of the worksheet, table A-6 on page 71 applies.
For line 7, it's the cost basis of the structure only, as the value of the land is never depreciated.
Did you actually sell this rental property in the 2022 tax year?
If so, you would not need to file a Form 3115 but, rather, simply enter the higher of the accumulated depreciation deductions you were allowed or were allowable (and in this case, it appears that you would enter the accumulated depreciation deductions you actually took - were allowed).
Oops...sorry, I didn't mean for the $200,000 to be the "cost of the land" but the cost basis of the property minus the cost of the land.
Did you sell or not? Have you taken too much depreciation over the years?