I have 2 assets as home office (day care) - the house + land and a bathroom improvement - and they seem to flow correctly to the home sale worksheet with recapture of depreciation taken. 4 other assets are broken out as 7 and 15 year depreciation - land improvement, appliances, etc. The asset sheets won't let me link them to the home sale - only assets classified as home asset (Sec 1250) seem to work? I think I need to recapture the depreciation taken on these 4 assets somehow? Any gain from these should go to the home sale and be deferred versus paying capital gain? The only way I can seem to get recapture is to enter a sales price for them equal to the recapture plus book value - but then I end up with a capital gain on the 8829 worksheet Part II Line 4 that should be rolled forward with the house for the future?
The asset sheets won't let me link them to the home sale
That's because those assets are not classified as a home of any type - be it rental property or home office. They're probably classified as equipment, appliances or something of the such (as I'm sure they should be.)
You have to split your sales price across the assets. So if you have 15 assets and you sold the property, you spread your sales price across all 15 assets, and make sure the total sales price of all assets is equal to your overall sales price.
Take special note here; if you sold the property at a gain, then you ***MUST*** show a gain on each asset. Doesn't matter if that gain is $1 on some assets and $10,000 on other assets. A gain is gain.
If you show a gain on some assets an a loss on others, then the depreciation recapture *WILL* *BE* *WRONG*. Guarantteed
That is sort of what I figured.
These assets are essentially a part of the overall home sale. If I had not had the home office , ANY capital gains would have been deferred to the next home sale. I think I can accomplish that if I allocate the portion of the sale for these assets to just be the book value for the assets. That way the Sec 1245 depreciation recapture will work with no capital gain on these assets and the gains would roll to the general home sale in the Home Sale worksheet and to the future. It looks like I would have to override the links from the home office asset sheets to Line 30 on the Home Sale worksheet to get both the Sec 1250 and Sec 1245 recapture in Line 30. Would also have to do this for Line 10 and A1 on the Home Adj worksheet. Sound OK?
I haven't reported a property sale in over a decade. So my worksheets from back in the early 2000's are way, way, way outdated, meaning I can't use them for reference for the 2021 tax year. I can however, reference the SCH D and the 4797.
It looks like I would have to override the links from the home office asset sheets to Line 30 on the Home Sale worksheet to get both the Sec 1250 and Sec 1245 recapture in Line 30.
If you do an over ride, then two things will happen.
- You not be be able to e-file the return, and will have to print, sign and mail it.
- You will invalidate the 100% accuracy guarantee.
In your list of assets, you report the sale of each asset individually splitting your sales price across all assets. The SEC 1245 assets will be shown and individually listed in part III of the 4797, just as you have them listed in the Business Assets section of the SCH C.
Override was the wrong term. I would just remove the links from the Sec 1250 Home Office asset sheets and manually enter the Sec 1245 and Sec 1250 recaptures from the 4797 and/or asset sheets into those Lines on the Home Sale sheets. It will not show as an override with the impacts you note (I have run into that before.....).
Any thoughts on using book values as the sale allocation amounts to address deferring the rest of the capital gain into the house sale in the future and still handle the recapture? When you use the link function from the asset sheets for Home Office (Sec 1250), TT specifically tells you to NOT assign a sale price to the asset - which makes me believe that is the way it would defer the gain if I only had Sec 1250 assets?
TT specifically tells you to NOT assign a sale price to the asset
Do it, (not assign sales price) and check the worksheets. You'll see the recapture is wrong. You can't recapture depreciation on an asset, if you don't "sell" that asset by assigning a sales price to it that is at least $1 more than the original cost basis of that asset.
If you don't assign a sales price to an asset, then the depreciation that is supposed to be recaptured and taxed as ordinary income, will instead be included in the gain and taxed at the capital gains rate. Of course, we know that would be wrong.
I was not clear. TT says to not assign an asset price if you link the asset worksheet to the Home Sale worksheet. As long as you use the link function, the depreciation recapture seems to work correctly for Sec 1250 assets and gets to Sched D.
You are correct - if I remove the link, I will likely need to add a sales price for those Sec 1250 Home Office assets and then manually enter the recapture amounts for the Sec 1250 and 1245 to the Home Sale worksheets.
From what I am seeing, book value (versus original basis) plus $0 works to get the Sec 1245 recapture to Form 4797 and then on to Sched 1 Line 4. Have not tried it yet for the Home Office Sec 1250 assets. I suppose could use Book +$1 --- a $1 capital gain for each asset is no big deal.
If I use original basis plus $1, I end up with a capital gain of original +1 minus book (that I want to defer to the future).
What do you mean by "defer to the future"? Did you not sell the Section 1245 property?
My mistake - sorry for the confusion.
I mean the $500,000 home exclusion.
I mistakenly thought it was a lifetime limit ( future....) - just realized you can do it on each house sale as long as you meet the criteria.
I want any capital gains to go against this vs paying tax on these Sec 1245 and 1250 gains. As I noted earlier, if I did not have a home office, any gain would go against the 500k. I want to pay tax on just the recaptures - not any other gain.