Commercial Property Sale with Asset Depreciation

[Laketime1904]

I sold my commercial property in July 2021.  (self rented for my own business, which was also closed.)

I have separated the building and land in the sale (under Rental Properties) when I indicate the building has been sold.  Is there a step-by-step instruction to handle the building improvements that were added as separate items each with their own depreciation?  I have told Turbo Tax the assets have been sold with the building sale date.

Thank you,

[DianeW777]

Yes. The example below will help you figure out the selling price for each asset you have for this property.

The selling price should be prorated for each asset then entered for each asset when you indicate they were sold or disposed of. You will not lose the remaining depreciation because you will use the remaining basis against the selling price to determine gain or loss. 

To figure out the selling price for each asset:

1. Take the current basis of each asset against the total combined basis of all of your assets to figure out the sales price for each one; OR 
2. Determine a fair market value for each asset against the total value of all assets to figure out the sale price for each one. 

Use the original cost of each asset listed on depreciation (all belongs to house B now) 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.

NOTE:  If you added any capital improvements in 2021 you can add those as part of the sales expenses and this will reflect the correct gain.

I hope this example provides clarification to enter your sale.

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Income & Expenses
2. Under Your income and expenses, scroll down to
3. Rental properties and royalties, click Edit/Add
4. Under Rent and Royalty Summary, click Edit
5. Click Update to the right of Assets/Depreciation.
6. Do you want to go directly to your asset summary?, click Yes and Continue
7. Click Edit to the right of each asset to be disposed of
8. Go through several screens until you get to Tell Us More About This Rental Asset
9. Click on This item was sold…….   And continue to answer the questions

You might also review information here.

[Laketime1904]

Do I add the depreciation for 2021 in the building basis amount - or is it calculated after I enter the sale information?

[JamesG1]

Do not add the depreciation to the asset basis.  If 2021 depreciation is allowed the depreciation will be reported at the screen Results.

The sale will be reported on IRS Form 4797 Sale of Business Property.  The sale may be reported with the land in Part I and the improvements in Part III.