Capital gain from sale of two family home

[amt_blues]

I owned a two family home with one unit as my primary resident, and the second unit as a rental property. In 2017 I sold the house with profit for each unit well over the exemption. Using Turbotax Premier, I will report capital gain for each unit separately, one as a primary resident and one as a rental property.

Will TurboTax Premier guide me through how to report the two units separately?Where and how? Thanks in advance.

[TomYoung]

You should have been reporting half of the duplex as a rental property all along.  Have you been doing so?  If you answer "YES" then you'd simply have "two" sales to report, one using the "Sale of Home (gain or loss)" interview and the other using the "Rental Properties and Royalties (Sch E)" interview.

[amt_blues]

Yes, I have been reporting half of the duplex as a rental property for many years, using Schedule E. For expenses such as mortgage interest, taxes, etc., I have entered half of what I paid for the whole house.

Reporting two sales seems to make sense. For each sale's cost basis, sale price, closing costs, etc., I will have to divide the totals by half, just like on Schedule E.

Should I use Form 4797 to report the rental property sale?

[TomYoung]

If the two half's of the property are essentially the same then splitting the proceeds by 2 would make sense.  Presumably you've already assigned cost bases to the "residence" and the "rental" when you set established the rental unit in TurboTax.

[amt_blues]

The two units are essentially the same. I do not recall assigning the cost bases in Turbo Tax. If I did, where can I locate them?

[TomYoung]

Well you had to establish a cost basis for the rental half of the property in order to get the depreciation calculation started up properly.  Presumable the residence basis is the remainder.  

So, simple example:  You bought the duplex for $400,000 and immediately rented out one of the units, logically you'd allocate $200,000 to the rental and the remainder for the residence would be $200,000.

[amt_blues]

I see. I probably entered the cost basis for the depreciation calculation decades ago. Not sure if that will be taken into account for the updated cost basis.

[TomYoung]

Absent additions or improvements the basis should not change.  Additions or improvements need to be added when placed in service and they can be separately depreciated.

[amt_blues]

Understood. Thanks.

[IreneS · Accepted solution]

Treat the sales separately--one as the sale of a rental property; the other as the sale of your principal residence.  TurboTax will prepare the necessary forms (including Form 4797).  [Just remember to divide the totals in half!]

Rental properties, as you know, are reported on Schedule E - Supplemental Income.  You will have to apportion the total sales price (for the rental portion) among the house and any assets that may have been entered separately (for example new roof, appliances, improvements).

To do this in TurboTax Premier (Windows), please follow these steps:

1. Click on Federal Taxes > Continue > I'll choose what I work on.
2. On the screen, Your 2019 Income Summary, in the Rental Properties and Royalties section, click the Start/Update box.   
3. On the Income from Rentals or Royalty Property You Own  screen, click Yes.
4. If you have already entered information about your rental (or transferred it from the previous year), you will come to the Rental and Royalty Summary screen.  Click on the Edit box next to the property. 
5. If you haven't yet entered any information about the property, you will see a screen, Is This a Rental Property or Royalty?  Mark the button for Rental property and enter information about the property. 
6. Continue through the screens, entering the requested information.
7. On the screen, Do Any of These Situations Apply to This Property? mark the box that you sold or disposed of the property in 2019. 
8. When you come to the screen, Review Your [XX] Rental Summary click the Start/Update box next to Sale of Property/Depreciation.  
9. If you have assets entered already, on the screen, Do you want to go directly to your asset summary? mark the Yes radio button and click Continue.
10. Click Edit next to the property.
11. If you haven't yet entered any assets, continue through the screens to enter the house.
12. On the screen, Tell Us More About This Rental Asset,  mark the box that the item was sold and enter the date of the sale.  
13. The next screen allows you to enter or confirm your prior depreciation .
14. You will eventually come to a screen to enter the sales information.
15. Continue through the interview, entering the requested information.
16. You will be brought back to Your Property Assets.  If you have other assets related to this property, follow the same procedure with them by clicking Edit on an existing asset [or Add an Asset].

[Edited | 4/14/2020 |  11:12am PDT]

If the house (the non-rental half) was your personal residence for two of the last five years, gain of up to $250,000 ($500,000 for married filing jointly) is excluded from tax and you do not have to include the information in your return.

The sale of a principal residence is generally not reported on a taxpayer's return unless the taxpayer:

• Has a gain and does not qualify to exclude it all.
• Has a gain and elects not to exclude it.
• Receives a Form 1099-D for the sale.

If you wish to enter the sale of your principal residence in TurboTax to determine if there was a gain, please follow these steps:

1. Click on Federal Taxes > Wages & Income
2. Under Less Common Income, click on the Start/Revisit box next to Sale of Home (gain or loss).  
3. On the screen Sale of Your Main Home click the Yes box.  
4. On the Sold A Home screen, review the information you will need to enter and click Continue.  
5. On the Sales Information screen, enter the date sold, selling price, and expenses.
6. On the next screen, Tell Us About the Purchase of Your Home, enter the date you bought or acquired your home.
   
7. Also enter the Adjusted Cost Basis.  For help in calculating the adjusted cost basis, click on the EasyGuide box.

Once you've entered all the information, TurboTax will calculate the gain for you.

[amt_blues]

Thank you very much. I have been reporting the rental property for years with Schedule E, so your detailed instructions are very helpful.

In Step 16 above, should I report the other half, my primary residence, as an asset? Or should I report it as described later at Sale of Your Main Home?

[IreneS]

No - report it as the sale of your main home.  Pretend that the two parts aren't next to each other. 🙂

[amt_blues]

OK. Thanks.

[amt_blues]

One more question. I have not received a 1099-S form. Do I need one? Or can I just report by following the above instructions?

[IreneS]

No. You do not need a 1099-S.