How to report rental property sale by TurboTax - Is there a step-by-step instruction ?

[MarilynG1]

If you are not subject to AMT, you can leave it blank.

If you were, TurboTax would have calculated the AMT Tax for you and you would have Form 6251 in your return.

Since we can't see your return in this forum, click this link for more detailed info on Alternative Minimum Tax. 

Here's more info on How to Report Sale of Rental Property.

[37Chief]

Our renter vacated our rental property in Sep 2021. In Oct 2021, we decided to sell the property and started major renovations. The renovations completed in Jan 2022 and the house sold and closed in Feb 2022.  Do I need to add the cost of the capital improvements from the renovation to my 2021 tax return?  This would probably account for 80% of the cost since it was completed in 2022.  Can the capital improvements be added when I do my 2022 taxes and enter the sale of the rental unit?

[LeonardS]

No, the capital improvements are not added to your tax return they are added to the basis of the property. You will use the basis of your property to calculate your capital gain/loss on the sale when you file your 2022 tax return.

Examples of capital improvements are:

• Remodels and room additions (including decks and porches)
• New or upgraded landscaping, irrigation, sprinkler system
• Hardscape such as pavement, block or retaining wall, patio
• Fencing
• Swimming pool, spa
• Storm windows, doors
• New roof
• Central vacuum or security system
• Upgraded wiring, plumbing, ductwork
• Central heating, AC, humidifier
• New furnace, water heater
• Filtration, soft-water, or septic system
• Built-in appliances
• New flooring or wall-to-wall carpeting
• Upgraded insulation
• Satellite dish

[DiddlyD]

You have to report rental expenses the year they occurred (credit card see instructions). Capital improvements are depreciated in your return on rental/business property.  If you lived in it 2 years and owned for at least 5 years and currently occupy the property (check how long you had to currently  live there) you have to claim capital gains on any rental property time after 2009.

[DiddlyD]

The capital gains exclusion requires occupancy by owner.

[PatriciaV]

 @37Chief

As LeonardS said, improvements increase your cost basis in the property and should be entered as a new Asset for Depreciation. However, you would not add the asset until it was placed in service. In your example, renovations begun in 2021, but not finished until 2022 would be added on your 2022 return. This additional basis would reduce any capital gain from the sale of the property.

[DiddlyD]

They are added to the basis only if they are not considered still rentals.  Otherwise they have to added as depreciated capital expenses in Schedule E, so for what the person spent in 2021 it will take depreciation and in 2022 when it was sold as a rental still the same method is used and when the calculations are done by turbo tax it will take the balance of depreciated items off automatically.  Unless they moved back in and are delcaring it as their primary residence and qualify for the exclusion and the repairs/improvements were done while they occupied the home would they add them to the basis otherwise they have to treat it has a rental expenses even if it was vacant at the time and then sold. 

[DiddlyD]

In the end it comes out the same but it's a matter of how IRS classifies the property.  Doesn't sound like they qualify for the owner exclusion as they didn't say they moved back into the property and occupied it for the qualified period prior to the sale, it that case it is still a rental albiet vacant at the time of sale.  They have different reporting requirements on capital improvements and how it's added to the basis upon the sale not to mention the expenses spaned 2 tax years.

[DianeW777]

The renovations were not completed until 2022 at which time they would be placed in service if the property was still available for rent. Depreciation does not begin until an asset is placed in service. That must be decided on by the owner (not the case for @37Chief since they decided to sell in 2021).

In this situation the capital improvements could be added to the sales expenses so that the proper gain is reflected on the sale as it is reported and entered into the asset section of the rental activity.

@DiddlyD

[DiddlyD]

It was placed in service when the renovations were completed/installed and ready to be used..... it is not until they get a renter.  They need to report the sale through Schedule E since it was never owner occupied before the sale.  All they had was a vacancy period in their rental regardless of their future intent.   I reported the sale of a rental in Turbo Tax CD version on my Schedule E, It then reported the sale of a business assest as it should.  I did include" all" capital improvements over the life of ownership in with the "basis" even those  I depreciated  which I received a tax deduction that year as well but then the recapture of depreciated takes care of any double tax credit to determine the capital gains (this is if you didn't occupy it 2 yrs out of the last 5 years before selling to get the capital gains exclusion). 

[jbn5122]

My sister and I each own half of a rental property that we sold last year.  How do we each report the sale?

[DiddlyD]

The same way you reported the income in prior years with 50% ownership through Schedule E it will ask if you have sold the property that year and when, it will then take you through all the schedules/forms required based on your answers and circumstances which can vary.  It can result in capital gains or not.  I also sold property last year and I found it necessary to read up on the subject and make sure I had the correct information.  I even had to amend my state taxes for AZ because they passed a law to reduce captial gains on investments purchased and sold after December 31, 2011 which Turbo tax did not properly report in my case based on my purchase date.  So I highly recommend investing some time in researching the IRS rules which you can do a search and find on IRS.gov. 

[DianeW777]

Yes, you can report the sale following the steps below. The sales price and sales expenses would be divided in half so that each reports their share of the sale. This assumes you each reported rental income and listed had half of the property on each of your returns (brother and sister individually).

If you received one Form 1099-S for the full amount of the sale, then you may want to nominee half to the person whose social security number is not listed on the form.

Nominee returns. 

Generally, if you receive a Form 1099 for amounts that actually belong to another person or entity, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received).  You must also furnish a Form 1099 to each of the other owners. 

File the new Form 1099 with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. (Provided on the Form 1096)

• On each new Form 1099, list yourself as the payer and the other owner, as the recipient. On Form 1096, list yourself as the nominee filer, not the original payer.  The nominee is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.

The forms filed with the IRS should be the red copy so if you don't have a color printer, go to the IRS website and order the forms here: 

• Form 1096-Transmittal 
• Form 1099S 2021

This will allow you to enter only half of the gross proceeds on your return.

The IRS requires that the selling price be proportionately prorated to arrive at a selling price for each 'piece' of a rental property since many assets can be placed in service at different times, such as your roof.

The selling price should be prorated for each asset then entered for each asset when you indicate they were sold or disposed of. You will not lose the remaining depreciation because you will use the remaining basis against the selling price to determine gain or loss. 

To figure out the selling price for each asset:

1. Take the current basis of each asset against the total combined basis of all of your assets to figure out the sales price for each one; OR 
2. Determine a fair market value for each asset against the total value of all assets to figure out the sale price for each one. 

Use the original cost of each asset listed on depreciation (all belongs to house B now) add those together then divide each one by the combined total to find the percentage of the cost for each asset.  Use that percentage times the sales price and sales expenses to find the selling price/sales expenses for each asset.

Example:  Original Cost (of each asset on your depreciation schedule)

$10,000 Land                = 13.33% 

$50,000 House              = 66.67%

$15,000 Improvements  = 20%

$75,000 Total                 = 100%

Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.

I hope this example provides clarification to enter your sale.

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Income & Expenses
2. Under Your income and expenses, scroll down to
3. Rental properties and royalties, click Edit/Add
4. Do you want to review your rental?, click Yes
5. Under Rent and Royalty Summary, click Edit
6. Click Update to the right of Assets/Depreciation.
7. Do you want to go directly to your asset summary?, click Yes and Continue
8. Click Edit to the right of each asset to be disposed
9. Go through several screens until you get to Tell Us More About This Rental Asset
10. Click on This item was sold…….   And continue to answer the questions

You might also review information here.

@jbn5122

[DiddlyD]

I beleive Escrow is legally required to issue and report at closing all the dispursements they make (1099's) to the IRS and the state the property is located in, not the seller.  Basically, the seller reports on their tax return their prorated share of the rental sale proceeds they received at closing and on the 1099 they received from escrow.  Then you need to know the rest like the prorated selling costs and capital improvements over the course of ownership.  I'm assuming you reported the rental royalties in prior years or it wouldn't be a rental.  So when you import and go to update that section of your return for the current tax year as long as you are using the Turbo Tax assistant the tax program will walk you through the sale process asking you all the required questions which winds up on form 4797 (captures and calulates the gain including depreciation recapture on what you have taken previously) and then Schedule D (Capital gains) .  The main part is you need to know your % to claim on everything allowable.  If you both or maybe just one lived in it 2 out of 5 years prior to the sale which it will ask then one or both may have no capital gains up to 250,000, that's not a normal scenario but might apply and provide some tax relief who knows.  It's important to familiarize yourself with all the rules on capital gains both federally and the state the property is in to insure you take every credit you have coming to you based on your individual circumstances.  If you find this way to complicated, then seeking a tax professional maybe the way to go.  

[DiddlyD]

If the sale is part of REIT of some kind, the investment company will take care of the disbursements from the sale not escrow. That is a different animal all together.  Some times people simply their questions so the answers may not be spot on with their actual circumstances and why I feel strongly about educating yourself as much as possible before filing so you can provide the most accurate information on your investment sale to insure you are not audited and or have to pay penalities.