May folks assume that depreciation is a permanent deduction. it is not.
If you replaced the roof in 2016 and put it in service that same year, then the roof "should" be listed as an asset in the assets/depreciation section and all set up to depreciate over the next 27.5 years. Based on your post, I'm assuming you've done all that.
When reporting the sale of the property in the SCH E section of the program, you will split your sales price among all assets listed in the assets/depreciation section. There is one important thing to note.
If you sold the property at a gain, then you must show a gain on all listed assets. Doesn't matter if the gain is $100,000 on one asset, and only $1 on other assets. A gain, is a gain, is a gain.... Period.
Likewise, if you sell at a loss, then you must show a loss on all assets. Again, it doesn't matter if that loss is $100,000 on one asset, and only $1 on other assets. A loss, is a loss.... etc.
When you sell at a gain, all depreciation taken is racaptured and taxed at the ordinary income tax rate and can be anywhere from 0% to a maximum of 25%. If you did not take depreciation then you are still required to recapture the depreciation you "should" have taken and pay taxes on it.
If you show a gain on some assets, and a loss on others, the TurboTax Program will not handle that correctly. This means that unrecaptured depreciation will instead be added to your capital gains, and taxed at the capital gains tax rate. When done correctly, recaptured depreciation is taxed at the ordinary income tax rate, anywhere from 0% up to a maximum of 25%.
One area to be careful in, is reporting the sale of the property itself. You'll split the sales price of that asset between the land and the structure, making sure that if you show a gain on the structure, you also show a gain on the land even though the land is not a depreciated asset.
What follows is some guidance on reporting the sale of rental property. Since you appear to have multiple assets listed for the property, please read it through completely before acting on it.
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 2022". Select it. After you select the "I sold or otherwise disposed of this property in 2022" 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 2022" 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.
