Depreciation Recapture on Sale of Rental Property

[radpetri]

In 2011, I purchased a condo for short-term rentals and also personal use. The business use percentage varied each year. In 2020 I took the condo out of service (quit renting it) which converted it to 100% personal use second home. In 2021, Turbotax deleted the rental (which it had copied over from my 2020 return) out of my 2021 return because I checked “did not rent, nor attempted to rent this property at all in 2021”. It also said to save my 2020 return and final Depreciation Report for when I sell the condo, which I did in 2022. After searching this forum, I did the following to report this sale in Turbotax 2022. First I calculated an average business use percentage for all years 2011 through 2020. Then I split the sale into two sales. I entered the Condo Personal Use portion under “Investment Sale” and the Condo Rental Use portion under “Business Items: Sale of Business or Rental Property”. Everything seems fine except for how Depreciation Recapture is being handled. My final (2020) Depreciation Report shows 46000 total depreciation, of which 36000 is MACRS SL/MM on the condo, and 10000 is 200DB/HY on various Improvements over the years. The Sale of Business or Rental Property screen only has one field for total Depreciation. But my CPA friend says depreciation on the condo is Section 1250 and depreciation on the improvements in Section 1245, which are taxed differently. Any way to enter depreciation for condo and improvements separately?

[tagteam]

Exactly what were the improvements you made?

Typically, improvements to real property are Section 1250 property because they become part of the real estate.

[tagteam · Accepted solution]

If you did sell Section 1245 property, then you will need to allocate a portion of the sales price to that property in the program.

In the Sale of Business Property section, select Property other than real estate that I took depreciation on. 

[radpetri]

Some improvements, like carpet and furnace, became part of the real estate. Other improvements, like furniture and appliances, did not become part of the real estate. When I followed your instructions for the latter improvements, Turbotax recaptured and taxed the depreciation under Section 1245. Thank You for your time and sage advice.