selling assets using TT Premier

Forum|Forum|4 years ago
March 12, 2022
1 reply
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i purchased house in 2006 to live in. i moved and rented it out from 2010 thru 2019. for 2020 in TT i converted rental to personal use with a date of 1/1/2020. I did not live in it one day in 2020. TT prepared a sched E with a minimum amt of depreciation. I subsequently sold property 3/3/2021. based on my situation I do not know where in TT to record the sale of the property, i.e. under "Sell of Business investment" or "Sale of second home".

PattiF

Level 15

This will be entered as Sale of Business Investment. The depreciation recapture will need to be accounted for to ensure an accurate tax return.

You said that there was a Schedule E for 2020 with a minimum amount of depreciation. Was this marked as no longer a rental?

Here is an answer from Champ Carl that is about your situation. He is advising to leave it as a rental to make recording the sale easier. If the house is still listed as a rental, that may be the easiest way to account for the sale and handle the depreciation for the house and other depreciating improvements. The dates in his answer are not current, but the information has not changed.

"Yes, you can convert the property to personal use if desired. But then when you sell the property you can "NOT" report the sale in the Rental & Royalty Income (SCH E) section of the program. You have to report it in the Sale of Business Property section. But this is going around your elbow to get to your thumb, as it's much more prone to user error. If you did not live in the house for one single day as your primary residence, 2nd home, or use it as a vacation home for one single day after the last renter moved out, there's no need to convert the property to personal use, and makes no sense to do so if there was "in fact" no personal use of the property in 2018. Just leave it classified as residential rental real estate. That's the easiest, simplest way to do this and not have to deal with all the *manual* math you will be "required" to do on your own for things such as depreciation recapture and utility expenses.

Just report the number of days rented in 2018 as 1 (one) day. (The program will not accept zero days). Then your rental income will be zero for 2018.

For expenses, you can fully and completely deduct all rental-related expenses such as utility bills (electric, water, etc.) and repairs. Then for those things that qualify as property improvements, you'll add them to the assets section with 0% business use. (I think the program won't accept zero percent business use, so just make it 0.1% business use. The depreciation will be minimal if not zero). Then you can report the sale in the rental section and the program will do all the math *for you*".

@Carl11_2

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gjgogolAuthor

Level 5

@Carl11_2 I spoke to you last year about this and at that time you suggested converting it personal use for 2020 return. could you please PM me?

gjgogolAuthor

Level 5

The answers to your questions are printed below so that you can see each one separately.

Question: Would it also not make any sense for the house value not to go up?

Yes, if the property was well maintained it could certainly go up. The point was to make sure you were using the most accurate method to determine your selling price for both land and building (and capital improvements).

Question: Gross sales of property was $184K (which is obviously less than my total original costs of $189K). So I applied 19% to the $184K and it obviously resulted in a lower land sales price ($35,048 vs, $36K). What am I doing wrong?

You are not doing anything wrong in the way you should calculate the land selling price (19% x $184,000 = $34,960). The Land has no depreciation so there is nothing to recapture on the land.
You will have an overall gain because you have not yet accounted for the depreciation for the rental period. The depreciation will be recaptured up to the amount of gain on the sale. Depreciation is considered as allowed or allowable so even if you never used depreciation expense on the rental building the IRS says you have.
- Building sale: Selling price - selling expenses - cost - depreciation = Net gain
  - Based on your figures there is roughly $50,000 +/- depreciation that would have been expensed on your returns during the rental period.

Question: I wasn't sure how I am to handle the amortized/depreciated refinance fees.

Do nothing. These were already handled on the 2020 tax return. You said they were expensed in 2020 when the property was taken out of service.

@gjgogol

@DianeW777 i really appreciate your help and patience.

I was reacting to @AmyC who I believed suggested/implied that it is unrealistic that the land decreased in value from 2006 to 2021 and a better it would be more realistic if I showed land increasing in value. And then she went on to explain that the land increases and therefore the house value would decrease (keeping total gross sales at $184K). But if I increase land value and decrease house value, then it also shouldn't make sense that the house value decreases from 2006 to 2021 (unless I misunderstood her point).

You stated Building sale: Selling price - selling expenses - cost - depreciation = Net gain...shouldn't depreciation be added (Selling price - selling expenses - cost + depreciation = Net gain)?