selling assets using TT Premier

[gjgogol]

DianeW777 how would i calculate the "cost of property (or tax basis) plus expense of sale"?

[gjgogol]

@DianeW777in TT it is asking under "Sales of Business or Rental Property" what type of property is this?  I can't figure out if i should select "Property other than real estate that I took depreciation on" or "Real estate that I took depreciation on" for each item in my list. my list in Form 4562 include:

rental rowhome

windows

basement

refrigerator

oven

dishwasher

hvac

[gjgogol]

upon sale of rental and form 4562, is the house and land the only thing considered "real estate"?

items on Form 4562...

rental rowhome

windows

basement

refrigerator

oven

dishwasher

hvac

[Carl]

Land is never depreciated. Only the house/structure, along with any other property improvements are depreciated. If you'll look at the 4562 that prints in landscape format, typically the first entry is for the property itself. You'll see where the "Cost (Net of Land)" is the value of the structure, and that's the value that's depreciated. The amount in the "Land" column is not depreciated.

The total acquisition cost for that item is Cost (Net of Land) value, plus the Land value.  The total of all your SEC1250 assets is the total of all items in the Cost (Net of Land) column. Do not include amortized assets in that total. In the end, the sale of those assets will be reported in Part III of the 4797.  The sale of the land will be reported in Part I if you held the property for more than 1 year.

[DianeW777]

The items you list are described below. Items 1, 2, 3 are considered real estate and should be on the depreciation statement as 27.5 year recovery.

See the notes on the appliances and the HVAC would not be real estate but is part of the house sale with approximate 15 year life.

1. Rental Row home - The house 

2. Windows - Capital Improvement

3. Basement - Capital Improvement

4. Refrigerator - Appliance and depends on the age if you allocate any part of the sales price to it.

5. Oven - Appliance and depends on the age if you allocate any part of the sales price to it.

6. Dishwasher - Appliance and depends on the age if you allocate any part of the sales price to it.

7. HVAC - Possibly a lesser life than the house itself

Use the depreciable assets to determine the selling price of each asset.  This example is how to arrive at the sales price for each.  If as I indicated the appliances have reached the sixth year of depreciation, they may not worth a portion of the sales price.  If you find that is the case, you can eliminate them from the equation like they don't exist.

Use the original cost of each asset listed on depreciation, add those together then divide each one by the combined total to find the percentage of the cost for each asset.  Use that percentage times the sales price and sales expenses to find the selling price/sales expenses for each asset.

Example:  Original Cost (of each asset on your depreciation schedule)

$10,000 Land                = 13.33% 

$50,000 House              = 66.67%

$15,000 Improvements  = 20%

$75,000 Total                 = 100%

Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.

[gjgogol]

so the following are SEC 1250 (and the rest are SEC 1245)?

• Rental Row home - The house 

• Windows - Capital Improvement

• Basement - Capital Improvement

you are correct that all appliances have reached the 6th year of depreciation, but not HVAC. Where does the land fit in all this? I know it is not depreciated but is it included in all my calculations, i.e. original cost and sales price/expenses?

[Carl]

SEC1250 property becomes "a part of" the structure. Things like a new HVAC system, new windows, etc.

SEC1245 property would be things not part of the structure. For example, furniture, new refrigerator/freezer, etc.

But a new hot water heater is SEC1250 because it does become a part of the plumbing system, which is already a part of the structure.

[gjgogol]

@Carl The total acquisition cost for that item is Cost (Net of Land) value, plus the Land value. The total of all your SEC1250 assets is the total of all items in the Cost (Net of Land) column. Do not include amortized assets in that total. In the end, the sale of those assets will be reported in Part III of the 4797. The sale of the land will be reported in Part I if you held the property for more than 1 year.

What specific items are you referring to when you say "Do not include amortized assets in that total. "? They are all amortized.  Regarding land, how do i calculate sales price of land and should TT be putting land in Part I automatically (because it's not)?

[Carl]

What specific items are you referring to when you say "Do not include amortized assets in that total.

Financing fees, and/or refinancing fees.

Capitalized assets are those depreciated over time. Amortize assets are usually intangibles (like financing fees) that get deducted over time, not depreciated.

Amortized costs are clearly identified on the 4562 that prints in landscape format titled "Depreciation & Amortization Report", as indicated in the image below for one of my properties.

[gjgogol]

@Carl  Regarding land, when selling rental, how do i calculate sales price of land and should TT be putting land in Part I automatically (because it's not)?

[MarilynG1]

Did you originally set up separate Assets in the Rental section for Building and Land?  

If you have any assessors records at the time of your purchase you may use the ratio of land value to overall value to determine a percentage value for the land and apply this percentage to the gross sale amount to determine the land sale amount. 

You could set up the Land Asset and use this allocation when reporting the sale.   

For instance, your local property tax statement may report that the value of the land for the property is $5,000 and the value of the structure is $45,000.  If you sold the property for $200,000, the value of the land could be allocated as:

Land           $  5,000                 

Structure    $45,000

Total           $50,000

Land assumed to be 5,000/50,000 = 10%

10% X sales price of $200,000 = $20,000 allocated to cost of land. 

A similar allocation can be made for the selling expenses.

Click this link for more discussion on  Allocating Land and Building Sales Price.

[gjgogol]

i have the form 4562 that shows property cost at $134,500 (cost net of land) in one column and $36,000 in another column for land. This form was from tax year 2020 when i converted the property to personal use. Do you think that is the reason I am not seeing land in Part I in my 2021 tax return (2021 is when I sold property), i.e. because it was converted in my 2020 tax return? If so, can you provide any guidance on how o get my assets back into TT for 2021, specifically the land into Part I of form?

[DaveF1006]

IRS Form 4562 is used to claim deductions for the depreciation or amortization of tangible or intangible property. land is never depreciated thus would not be part of this form.

[gjgogol]

as you know, IRS Form 4562 is also used to show the amortization of intangible property. for example, the amortization of refinance fees also show up on the form at the bottom. I have a form 4562 that shows amortization of refinance fees and in that row on the form, it shows an amount in the Prior Depreciation column. I then get confused understanding the difference between amortization and depreciation.  In light of this, should the amount of refinance fees that appear in the Prior Depreciation column be added to my TOTAL depreciation for the rental property?

[RobertB4444]

@gigogol  Amortization is just depreciation on an intangible asset.  If the intangible asset is part of the disposition of the property (which - in this case - it would be) then the adjusted basis of the intangible would be added to the adjusted basis of the tangible assets to create the adjusted basis for the sale.  So, yes,  the depreciation is part of the total depreciation.