How do I report my original acquisition costs in rental property sales?

[jinwei01]

I purchased a residential rental property for $300K in cash in 2018 and sold it for $385K in 2023. How do I deduct the original costs when filing the tax return so the actual gain can be reflected correctly? Should I include it in the expenses or should I deduct it from the sales price?

[MarilynG1 · Accepted solution]

Neither. If you purchased a property for 300K and had 30K in sales expenses, for example, when you set up the Cost Basis for your rental property, you could have entered 330K.  Then you would begin depreciation from that amount.  

However, you could add your original Acquisition Costs now as an Asset, with the original date, and they will be depreciated along with the property. 

When reporting the sale, the Sales Proceeds will be allocated to payoff the undepreciated balance of the Acquisition Costs asset, with the rest applied to the undepreciated balance of the Property (and land).

Don't forget to add Sales Expenses to the current Cost Basis to lessen sale gain. 

Follow these steps to Report the Sale of Rental Property.

[jinwei01 · Accepted solution]

@MarilynG1 Thank you very much for the help.

When you said "Cost Basis", do you mean the following screen (my original cost was $299,950, the sales expenses were 31,216, thus $331,166):

[PatriciaV · Accepted solution]

Yes, that is the correct page to enter your original cost (including sales expenses) and accumulated (prior) depreciation.