Inherited rental property sold in same year

[Jimmy44]

My sister and I were 50/50 owners of two CA rental properties that came to us from a trust when our father passed. One of the properties was a condo, the other was a single family house. Chain of events was: Father passed Oct 4th 2020. Trust became an irrevocable trust when father passed. Both properties had renters at that time. March 1st 2021, both properties were removed from the trust and became our property. Condo was sold May 4th 2021. House was sold May 25th 2021. I know that a trust tax return is needed for Oct,Nov,Dec 2020, and Jan, Feb 2021. The question is, how to record the properties for Mar,Apr,May 2021on our 2022 returns. They each had renters until sold.

[AmyC]

You will each file a sch E listing the rental income and expenses for the time you owned them March- May. You will each list your half of the income and expenses. As you enter the house in the program, you will also be marking that you sold the property. As an inheritance, your basis in the property is the value of the property on the date of death. If prices remained fairly stable in your area, the sales price will be fine since within 6 months of death.  I am very sorry for your loss.

[Jimmy44]

Thank you for that info. We had both properties appraised at the time of passing. The house sold for more than the appraisal price, and created a capital gains situation. If I enter the property in the business section (rental properties and royalties) I can only enter date acquired, which appears to create a short term capital gains situation.  If I enter in the personal income section (investment income) I am able to enter "inherited" in the date acquired portion, which seems to create a long term capital gains situation. I want to make sure we do not pay unnecessary tax (short term vs long term capital gains) on the gain selling the house.

[ColeenD3]

You turned these properties into rentals. You can't claim them as investment property because they are business property. There is a screen that asks how you obtained the property.

[Jimmy44]

Thanks for the clarification, however I never encounter the screen you picture in the screen shot you posted when I enter the house in the business income and expenses section of my (TurboTax Home and Business). I enter in the section "Rental Properties and Royalties >Sale of Property/Depreciation, and am asked the date acquired, but not how it was acquired.

[DianeW777]

My suggestion is to say the property was converted to 100% personal use (Special Handling Required? screen), answer Yes.

Be sure you have the cost basis, rental property building, and land if applicable. as well as the amount of depreciation used in 2021.  TurboTax will show you the amount. Next you will enter the sale separately outside of the rental activity section. Inherited property is always considered held long term.

Once you have compiled all the data,  including the total for all depreciation used on your tax returns while you owned it as a rental and you are ready to begin the sale entry.  

• Entry in TurboTax:
  1. To sell each rental property: Less Common Business Situations > Sale of Business Property >Start or Revisit > Select Sales of business or rental property..... Enter your sale
  2. See the image below for assistance.

Please update the issue if you need further clarification.  This will provide the long term treatment you should receive as inherited property.