How do I input my rental property that I sold the beginning of this year and have not had a tenant since the end of last year?

[Scruffy Paws]

I sold a single-family rental property in March of this year.  It originally started as my primary residence, but I moved and have been renting it out for the last 10 years.  This year I have not had a tenant since it was on the market and sold in March.

Under the "Business" tab I clicked the "Property Profile > General Property Information" update button.  Made sure it was still marked as "rental property" > "single family".  Then I checked that "I sold or disposed of this property in 2020"

My question is, on the next page  where it asks how much of the year was it rented, I marked "no, this property was not rented all year" and then "0" days for each "days rented" and "personal use" and then I checked the box that said "I did not rent, nor attempt to rent this property at all in 2020".  However, at that point I got the message... (Screenshot also attached)

Since this property was not a rental at all in 2020, you should delete it as a rental. Make sure to keep your complete return, including the Depreciation Report for this property, from 2019 (or the last year this property was used as a rental).  You'll need that information when you sell the property or convert it back to a rental.

I want to clarify if I should actually delete it under my rental property section from the "Business" tab.  If so, where do I enter the sale?  My guess would be under the "Personal" tab and then "Less Common Income" > "Sale of Home (gain or loss)"... HOWEVER, this appears to be for main homes only. Per the IRS I need to enter this on Form 8949 since my rental activity didn't rise to the status of a trade or business.  Where does this need to be entered?

[DianeW777]

No.  You should not delete the property from the rental section of the return because the type and use of the property has not changed.  

• Select "yes" the property was rented all year and at fair rental value. 
• Next, enter zero for the days of personal use since there was no personal use.
• Also, be sure to select "yes" that you were an active participant.  

This will allow you to proceed to enter the sales information for each asset (the home and any other assets such as appliances that are listed).

[Scruffy Paws]

@DianeW777, thanks for your response!  Can you confirm... if by doing this, will it will be put on Form 8949 and classified as a capital loss since the property sold for less that I paid?  It is only one of two rental properties I own and there is minimal management except for minor repairs here and there as needed so I don't believe it classifies as a business.

According to the IRS site I linked in my original question, it says...

What forms do we file to report a loss on the sale of a rental property?

Answer: Rental property is income-producing property and, if you're in the trade or business of renting real property, report the loss on the sale of rental property on Form 4797, Sales of Business Property. Normally, you transfer the loss as an ordinary loss to line 4 of Schedule 1 and attach it to Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors. If your rental activity doesn't rise to the level of a trade or business, but instead is held for investment or for use in a not-for-profit activity, the loss is a capital loss. Report the loss on Form 8949, Sales and Other Dispositions of Capital Assets in Part I (if the transaction is short term) or Part II (if the transaction is long term). If your capital losses are more than your capital gains, you can deduct the difference as a capital loss deduction even if you don’t have ordinary income to offset it. The yearly limit on the amount of the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Normally, you transfer the capital loss to line 7 of Form 1040 or 1040-SR. See the Instructions for Form 8949 PDF, the Instructions for Form 4797 PDF and the Instructions for Schedule D (Form 1040) PDF.

[DianeW777]

When you sell rental property with an overall loss, the loss will first carry to the Form 4797, Part II, and then an overall loss carries directly to Schedule 1, Form 1040.  A loss will bypass the Form 8949, and Schedule D,  because it is a loss that is allowed in full in the year of disposition (sale). TurboTax will take care of this flow by providing all the necessary information in the rental activity.

A business loss is not limited by the personal capital losses associated with Schedule D.

[Scruffy Paws]

Based on the IRS's wording it appears you should only be using  the 4797 "if you're in the trade or business of renting real property" which I don't believe applies to me, but I would appreciate feedback there.

I did try to follow the steps you mentioned, but the "days rented at a fair rental price" and "personal use during the year" fields only appear if I select "No, this property was not rented all year".

[DianeW777]

If the rental house was not converted to personal use and it was simply listed for sale, then it is definitely business property.  The fact that it was not rented in 2020 because it was made ready for sale does not change the status of the property.

It is correct to say the property was rented all year for the same reasons.  The income for this property will be zero for 2020, but any expenses will be deductible, with the exception of sales expense which will be part of the sale entry in the asset. The other questions do not need to be answered if you select "yes" it was rented all year, as this is the correct response to handle the sale of your property correctly.

[Scruffy Paws]

I appreciate all your info.  Although, I guess I'm still unclear as to if form 4797 is correct.  Per the IRS it would only be correct if my rental activity rises "to the level of a trade or business" which I don't believe it does.   It is one of two rental properties I own (single-family homes), but there is minimal management except for minor repairs here and there as needed so I don't believe it classifies as a "business" per the IRS description.  Thoughts?

Secondly, I did try re-adding the property back into the Business > Rental section. I believe I have it all added back in correctly.  I checked the box under "Property Profile" stating "I sold or disposed of this property in 2020", but I do not see where I can put the final sale information and cost basis adjustment.  Where would I find that?  I see the note when I checked that box saying "You'll enter the details of this sale when you reach the depreciation section later" but I am not seeing where I do that in that section.

[DianeW777]

The rental activity is considered business property under IRS law in that it is reported as the sale of business property on Form 4797.  The advantage to you is that it obtains the same tax treatment as other business property sales that result in a loss.  The loss if fully deductible in the year of the sale or disposition.

In the depreciation section there will be questions about the sale information inside the entry of each asset (if you only have the house and land then it would be only one asset).

• Be sure to select the check box beside "the item was sold, retired, destroyed, disposed of..... (see the image below).
• Continue through the screens to enter the sales information (see the image below)

[Scruffy Paws]

Thanks I found that now.  Where would I enter improvements I made this year to get it ready for sale (new kitchen, flooring, etc)?  

My first thought would be under "Expenses > Common Expenses" although the closest category would be "repair" but that doesn't seem accurate.  If I was keeping it as a rental I could see it possibly be put under Assets, but I don't believe I can because the asset would be added and then sold in the same year.  However, then I found the "Miscellaneous expenses" which seems like the place I should use.  Is that correct?  Also I have permanent improvements that I made a few years ago such as a new patio that are not accounted for.  I assumed I would be putting these in as Permanent Improvements at the time of sale which is the case if I enter this sale into the two other sections I tried previously, but I don't see that option here.  I never entered them under Assets since I didn't want to deal with the depreciation.  Is it okay to include them as expenses this year then?

Secondly,  I'm still unclear if the Form 4797 is correct.  If I'm understanding the IRS correctly, I don't think I qualify as a trade or business because I spend less than 250 hours per year on it.

Third, I completed my entry of my sale under "Business > Rental Properties..." but I am not seeing the information on either the 4797 or the 8949.  Where would this appear on the actual tax forms?

[DianeW777]

The capital improvements made in 2020, before the sale, would be added to the 'Asset and/or Land Sales Expenses'.  Any depreciable asset, or capital improvements, placed in service and removed from service in the same year are not entered as an asset, but would be part of the cost basis.  Placing them in sales expense will account for this basis adjustment and therefore reduce the overall gain or loss. See the entry fields in the attachment below.

The Form 4797 is the only place and the absolute appropriate place for this sale to be reported on. It will appear in Part II assuming it is an overall loss as you indicated. From there it will flow to the 1040 directly.

Form 8949 is not part of this sale and it should not be included with your tax return unless you have other sales such as stock or other investment property.

[Scruffy Paws]

Can you confirm if I can put improvements from previous years in this spot as well?  There are many larger ticket items that I paid for to improve the house, but didn't classify as "repairs" so were not deducted in previous years such as a fence and patio.

[Irene2805]

No, not yet. - The "larger ticket" improvements should have been entered as assets in the year they were put into service (installed) and depreciated.  If you did not, when you sell your rental home, the IRS requires that you recapture all allowable depreciation to be taxed (i.e. including the depreciation you did not deduct).

Before you enter the sale of the property, enter the improvements you made previously.  Make sure you enter the date of service (even though it may have been in previous years).  TurboTax will then calculate the depreciation you should have taken.

THEN, you can apply a portion of the property's sales price and sales expenses.

[44619herman]

Does this information that you provided last year (2021) for a home sale in 2020 still apply to a rental house sold in 2021.  My tenant moved out 12/31/2020 and then for the next two months, I worked on fixing it up for the purpose of selling it. I did not attempt to rent it out at all in 2021. I sold my rental property on 2/4/2021. Now, I am using Turbo Deluxe for tax year 2021. I had the same concern that if I correctly answer the question  (i.e. I did not try to rent the house out in 2021) because my tenant moved out 12/31/2020, the turbo tax removes my schedule E. Then I am kind of at a loss as to how to close out all of the assets. 

Is it still correct that I should say in the turbo tax program that I rented the house out the at fair market value in 2021. Then when I go to schedule E state that I had no income. Then continue with the disposing all the assets in the depreciation and amortization report. Is this still the correct method.  Thank you for your assistance.

[ThomasM125]

@44619herman Yes, the house would be considered rented at fair market value during the time you were repairing it or preparing it to be sold.