I am trying to understand how to record the sale of my rental property. I purchased it in 2005 for $350,000 as my primary residence. I converted it to a rental property in 2013.
By your dates, that confirms that you do not qualify for the "lived in 2 of last 5 years" capital gains tax exclusion. You "will" pay taxes on any and all gains realized. If sold at a loss, you will be allowed to deduct losses not only from the passive rental income, but also from your other ordinary income, up to a fixed limit each year.
At the time I converted it its FMV was $250,000
Assuming $250K was the basis you used on the SCH E for depreciation, you were correct in using that basis. The law is, you depreciate based on the "lower" of what you paid for it, or it's FMV at the time of conversion.
This means that you can not report this sale in the Rental & Royalty Income (SCH E) seciton of the program. If you do, then your gain or loss will be based on a cost basis of $250K, and that is not right. You have to report this sale in the "Sale of Business Property" section of the program. But before you can do that, you need to get a few numbers from the Rental and Royalty Income (SCH E) section of the program. Namely, the total of all depreciation taken on the property.
Start working through the property in the SCH E section of the program and do indicate that you "sole or otherwise disposed of this property in 2019". Continue working it through reporting/entering any rental income received as well as any rental expenses incurred.
Next, start working through the "Depreciation/Sale of Assets" section. You must work through each individual asset one at a time, and you'll need to write down numbers while doing this. So have pen and paper handy.
For each asset select the option for "I stopped using this asset in 2019".
On the "Special Handling Required" screen, select YES. (If you select NO you will be "forced" to enter sales information. We're not reporting the sale in this section.)
When asked for your disposition date, enter the closing date of your sale.
You need to write down (for each asset) the "prior year's depreciation" and the "current year's deprecation".
For any property improvements you did ***AFTER*** you converted it to a rental, add your cost basis for that property improvement to your original $350K that you paid for the property. This will give you your "true" adjusted cost basis.
When done with all assets, add up all the depreciation figures you wrote down to get the total of all depreciation taken on the property while you owned it.
If at any time you claimed "any" vehicle expenses for this rental, even if less than 100% business use, you have to work through the vehicle expenses section to show your disposition of the vehicle. I seriously doubt you sold the vehicle as a part of the rental property sale transaction. So just indicate that you removed the vehicle from the business for personal use. Again, the date will be the same as your closing date on the sale.
Finish working through that rental to completion. When done, you have written down all the info you need to report the sale in the "Sale of Business Property" section now.
