Sale of Rental Property

[djhilton60]

Adjusted cost basis includes adding back depreciation.

Turbo tax asks for total depreciation later... which then increases taxes owed by another $7000.  Why is it included in both places?

[Carl]

Where are you reporting the sale? If a renter was the last occupant to move out of the property prior to the sale, you report the sale in the Rental & Royalty Income section.  Here's the guidance.

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 have a selection on it for "I sold or otherwise disposed of this property in  2021". Select it. After you select the "I sold or otherwise disposed of this property in 2021" 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 if it's zero. Then you MUST work through the "Sale of Property/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 on some assets. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1 on some assets.

Basically, when working through an asset you select the option for "I stopped using this asset in 2021" 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.

[ColeenD3]

The Rental section is set up to guide you through the sale. You will first set up the particulars of the property in Rental Property Info, then move to income and expenses and finally, under the Asset section, enter the specific information pertaining to the sale.

When you are entering all the information for the sale you will enter income on specific screens. The one below will ask for your cost.

You will also be asked about your sales price.

You will also be asked to confirm your depreciation based on the beginning and ending dates that you rented the property. The program takes this information and determines your gain or loss, if you rented in 2021 and entered your information in the Rental section.

[djhilton60]

Thank you for the information. My condo has been a rental the entire time I’ve owned. I have accumulated depreciation for 18 years. When I enter the adjusted cost basis which includes the accumulated depreciation, I owe $7629 in federal tax. Several  questions/screens later the program asks the amount of depreciation (still under the same rental sale), when I enter the amount (which was included in the adjusted cost basis) my tax increases to $14903. It seems I’m being charged twice for the depreciation. Not sure if it matters, but my taxable gain shows $149775. My regular income is $84k and I file standard deduction. 

[ColeenD3]

If you are following the steps above that I outlined, you should not be entering an adjusted cost basis. However, if you did not rent in 2021, you would have to enter the information in the Sale of Business Property section. Since it apparently will ask you for the depreciation on a different screen, do not include the depreciation when figuring an adjusted basis.

[ColeenD3]

If you are following the steps above that I outlined, you should not be entering an adjusted cost basis. However, if you did not rent in 2021, you would have to enter the information in the Sale of Business Property section. Since it apparently will ask you for the depreciation on a different screen, do not include the depreciation when figuring an adjusted basis.

[ColeenD3]

If you are following the steps above that I outlined, you should not be entering an adjusted cost basis. However, if you did not rent in 2021, you would have to enter the information in the Sale of Business Property section. Since it apparently will ask you for the depreciation on a different screen, do not include the depreciation when figuring an adjusted basis.

[djhilton60]

I wasn't using the online adjusted base calculator, I went back and went through the process which does ask about depreciation.

On a later screen it asks about depreciation again, regular or AMT depreciation.  It is a rental property that I consider an investment property, not business, as I never had a net income.... plus previously I never entered as QBI.  

If I enter on the first line as regular depreciation, it increases my taxes by $7000, entered under AMT it remains the same.  Note: when I looked at the turbo tax created depreciation forms it's on an AMT depreciation form.  

I apologize if not communicating correctly!

[Critter-3]

First STOP looking at the Refund-O-Meter which is not correct until you have entered everything in the program ... that figure will keep moving until you are done.

Next ... you should ONLY be selling off the property once in the RENTAL asset section.  Never enter anything twice so if you also entered it later in the sale of business assets section remove that incorrect entry. 

[djhilton60]

For clarification, I did rent the property Jan-Sept this year and did complete the schedule E.  I entered I did sell the property, therefore now have an income under sale of home or property that includes the cost as adjusted, plus depreciation.  Would my depreciation be regular or AMT depreciation?  It is a condo with a few improvements.

[Critter-3]

Did you also sell off all the assets listed in the Rental section ?  

[djhilton60]

All of the assets were sold with the condo