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.
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.
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?
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.
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.
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.
**Mark the post that answers your question by clicking on "Mark as Best Answer"
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.
Still have questions?Make a post