What part of the depreciation and amortization report is used when the property is sold:
cost net of land, depreciable basis, or current depreciation?
When you sell a property, you include all assets on the Depreciation Report. The adjusted basis (cost basis) for each asset is the depreciable basis less prior depreciation less current depreciation.
Allocate a portion of the sales price and expenses to the land (if any) and all other assets included in the sale.
You may allocate the sale proceeds and selling expenses using any reasonable method. Most taxpayers use the adjusted basis at the time of the sale. Calculate the percentage of basis that belongs to the land, then apply that percentage to the sale. The remainder belongs to the asset (building and improvements).
Example:
What part of the depreciation and amortization report is used when the property is sold
Nearly all of it. I'm assuming this is rental property.
It's important to understand the difference between capitalized costs and amortized costs.
- Cost associated with acquisition of the property when you originally purchased it are added to the cost basis of the property. An example would be the transfer fees (sometimes called documentary stamps) that are paid at the courthouse to remove the seller's name from the deed and replace it with the buyer's name. That means they get capitalized and depreciated over time as "a part of" the property cost basis.
- Cost associated with acquisition of the loan. Examples would include loan application fees and survey fees if the lender required a survey as a condition of the loan. These costs are amortized and deducted over the life of the loan.
- Depreciation is *not* a permanent deduction. When you sell the asset, all depreciation must be recaptured in the tax year of the sale. Recaptured depreciation does two things.
a. It is added to your AGI in the tax year of recapture and has the potential to bump you into the next higher tax bracket. It just depends on the numbers.
b. Recaptured depreciation is taxed at the "ordinary" income tax rate up to a set maximum of 25%.
Depreciation and amortized costs are handled differently from each other in the tax year of the sale.
- Amortized costs "are" a permanent deduction. If there is any remaining amount to be deducted in the tax year of the sale, that remaining amount is fully deductible in the tax year of the sale.
- Capitalized/depreciated costs are not a permanent deduction. They get recaptured and taxed (as stated above) in the tax year of the sale.
Below are two sets of guidance. The first is how to report the sale of rental property in the SCH E section of the program so that all recaptured depreciation is taxed correctly at the ordinary tax rate, and not the capital gains tax rate. The 2nd set tells you how to deal with any remaining amortized costs you may have, so they are correctly deducted.
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.
DEDUCT FINANCING FEES OF OLD LOAN WHEN REFINANCING OR SELLING
In the Assets/Depreciation section for that rental property, elect to edit/update the entry for your points.
- On the "Review Information" screen click Continue.
- On the "Did you stop using this asset 2021?" screen, click YES.
- On the "Disposition Information" screen, in the disposition date box enter the date you closed on the new loan. Then click Continue.
- On the "Special Handling Required?" screen, click YES.
- On the "Depreciation Deduction Amount" screen, select Transfer These Fees For Me To Other Expenses. Then click Continue.
You'll see the remaining fees of the old loan to be deducted in the Rental Expenses section, very last screen of that section. The entry will start with "Unrealized Refinancing Fees...."
I am using TT Business 2022 for our LLC. The instructions above refer to a "special handling required" option to get the remaining balance of the intangible asset to convert to expense. This option does not appear to be available in Turbo Tax Business 2022.
How do I expense the remaining loan fees in TT business for a residential property sold?
How do I expense the remaining loan fees in TT business for a residential property sold?
Assuming you entered the fees correctly to begin with, as an intangible asset, the below is how you get the program to expense the remaining fees. As you work it through, read the small print on *every* screen.
DEDUCT FINANCING FEES OF OLD LOAN WHEN REFINANCING OR SELLING
In the Assets/Depreciation section for that rental property, elect to edit/update the entry for your points.
- On the "Review Information" screen click Continue.
- On the "Did you stop using this asset 2021?" screen, click YES.
- On the "Disposition Information" screen, in the disposition date box enter the date you closed on the new loan. Then click Continue.
- On the "Special Handling Required?" screen, click YES.
- On the "Depreciation Deduction Amount" screen, select Transfer These Fees For Me To Other Expenses. Then click Continue.
You'll see the remaining fees of the old loan to be deducted in the Rental Expenses section, very last screen of that section. The entry will start with "Unrealized Refinancing Fees...."
@RegWA wrote:How do I expense the remaining loan fees in TT business for a residential property sold?
You need to add (or have previously added) the fees as a separate asset in the program (Amortizable Intangibles) and then you will go through the process of indicating that they were "sold" in the program.
you will go through the process of indicating that they were "sold" in the program.
Assuming they were entered correctly to begin with, you don't indicate that your fees were sold. Read the above guidance.
If they were not entered correctly (you entered them as a depreciated asset instead of an amortized one) you still select YES on the special handling required screen. Then you have to enter the remaining fees to be deducted, manually in the Misc Expenses screen at the end of the Rental Expenses section.
If you select NO on the special handling required screen, you will be forced to enter a sales price. That would be flat out wrong and if they were entered as an asset to begin with, you would either be "forced" to recapture the incorrectly depreciated fees, or they would end up included in the capital gain on the sale.
I know this, because I've tested it in the program.
@Carl wrote:
you will go through the process of indicating that they were "sold" in the program.
Assuming they were entered correctly to begin with, you don't indicate that your fees were sold. Read the above guidance.
Read @RegWA's post.
@RegWA is using TurboTax Business which does not have the "Special Handling Required" screen that is present in the individual versions of TurboTax. There is no way to use the "guidance"; it is inapplicable to the Business edition.
@Carl wrote:I know this, because I've tested it in the program.
You may have tested it in TurboTax Home & Business but you did not, apparently, test it in TurboTax Business.