Short Term Sale of Inherited Business Property - Form 4797

[Erk3]

I sold a Rental property 6 months after inheriting it. Turbo tax Premier does not ask me if I inherited it and forces showing that I purchased the asset, which is incorrect. It also forces me to enter a purchase or acquisition date, but I thought the word INHERITED must be entered there instead, to show up on Form 4797.  It seems like TurboTax needs to be updated to accommodate this scenario. My entrees end up on Part II of Form 4797 Ordinary Gains and Losses held 1 year or less, and I'm thinking TurboTax should be putting them in Part I as Long term since it is Inherited Property. How can this be done properly?

[DianeW777]

Here is the way to enter the sale and account for the rental activity for the six month period.  

When you are in the rental activity for 2023, you must select the 'Assets' section, then in each asset you must go to the screen titled 'Tell Us More About This Rental Asset'. 

1. Once you reach this screen for each asset, you must select 'This item was sold, retired, stolen, destroyed, disposed of, converted to personal use....' 
2. Next enter the date you stopped using the asset for rental purposes. And answer 'Yes' you always used this asset 100% of the time for business. (The percentage of use doesn't change until after conversion from rental to personal use.)
3. Select 'Yes' for Special Handling due to 'You converted the asset to 100% personal use'.  
   • Be sure to note the amount of depreciation you deducted on all rental assets

Next you will enter a Sale of Business Property:

1. Wages & Income at the top
2. Scroll down to Other Business Situations
3. Select Sale of Business Property
4. Select Sales of business or rental property that you haven't already reported.
5. Answer 'Yes' to Do all of the following apply...?
6. Enter as description 'Inherited Rental'
7. Enter a date that will be more than one year before the sales date for the date acquired  (inherited cannot be entered in this screen)

Be prepared with the sales price, sales expenses, and the inherited cost basis (fair market value on the date of death of the person you inherited from).  See the image below.

                             

[Erk3]

Thank you for your reply DianeW777. Unfortunately, since the sale did not result in a gain, TurboTax would not allow the entry in "Sales of Business or Rental Property" and it removed the sale entries. Any other suggestions to have TurboTax show the inherited Business Rental Property as "INHERITED", and sold at a loss?

[DianeW777]

If you happen to place the property in service for rental and removed it in the same tax year, this could be the issue.  You are not allowed to depreciate an asset that is placed in and out of service the same year.  

You may need to report the sale of the rental property on Schedule D (Investment Sale) if this is your situation.  Remove the asset (house and/or land) from the rental property and just take the expenses and report the income.

1. Under Wages & Income scroll to Investments & Savings
2. Select Start/Revisit beside Stocks, Mutual Funds, Bonds, Other (1099-B)
3. Select Add Investments or continue to go through the screens to select 'Other' > Continue
4. Begin to enter the sale description >  Under Type select Other > Under How did you receive select 'I Inherited it' (if applicable)
5. For TurboTax Desktop you would enter the description 'Inherited Property' and select 'Long Term' as the hold period
6. Enter your sale date and 'Various' as the Acquired date
7. Continue to complete the screens until you arrive back at the Wages & Income main page.

Inherited property is always considered to have a long term holding period which provides favored tax treatment.

Please update if you have more questions.  @Erk3