Buying and Selling Rental Real Estate Same Year

[leisurelar]

I bought a house in Aug, 2022, to rent out.  I instead chose to fix/flip.  I sold in Dec, 2022.  TT Home and Biz is calculating depreciation.  I'm sure I can't take depreciation, since it's the same year purchase/sale.  Is that a problem?

[Carl]

Where are you reporting the acquisition/sale of this property? Hopefully not on SCH E since you never rented it out.

[leisurelar]

I have a few rentals.  This is the first I've ever bought/sold in the same year.  In TT H&B, I entered as an asset. It asks if I purchased and when.  It asks if I sold.  I enter that info.  I believe it does automatically go to a Sched E.  I didn't choose which form(s).  TT does that.

[Carl]

If you never rented the property, you will not report this in the SCH E section. It's not a rental property and never was while you owned it. You'll report the sale of this property in the Investments section. Since you had it for less than a year, it's a short term investment and you'll pay the higher short term investment gains tax on any gain realized.

Make sure you delete this specific property from the Rental & Royalty Income (SCH E) section of the program. Then report it in the Investments section.

[Anonymous_]

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@leisurelar wrote:

I'm sure I can't take depreciation, since it's the same year purchase/sale.  Is that a problem?

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TurboTax is handling this scenario properly since the asset is depreciable real estate (Section 1250 property). 

As has been mentioned, if you do not want depreciation calculated, enter the transaction as the sale of investment property.

[Carl]

@Anonymous_ my interpretation of this thread is that there was never an attempt to rent out the property. So that's why it would be reported in the Investments section, and not on SCH E.

[Anonymous_]

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@Carl wrote:

@Anonymous_ my interpretation of this thread is that there was never an attempt to rent out the property. 

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@Carl The very first line of @leisurelar's post states, "I bought a house in Aug, 2022, to rent out".

[note that I believe the transaction could be reported as the sale of investment property at this point]

[also note that I was answering the specific question as to whether TurboTax was handling this scenario properly when entering it on Schedule E]

[leisurelar]

Hi Carl,

Your interpretation was spot on.  I WAS going to rent it.  I decided not to.

I was able to do exactly as you proposed.  I removed from Sched-E.  I added the purchase/sale in the investments section.  It worked correctly.

Thank you very much!

[Rachel_danner]

Piggy backing. We have a similar situation. Purchased grandfathers home with the intention to fix it up and rent it. We ended up fixing it up and selling it. I removed it from schedule e. And added it to investments. How did you add in your expenses? Did you just deduct them from your profit amount? We had a full gut on this home so I have a large amount I’d like to include as I didn’t truly profit all of it. 

[PaulaM]

Add all your rehab costs to the investment cost basis. Home purchase cost + rehab costs = Total cost basis of investment. This increase in basis is what will lower your capital gain on the investment.