How to recapture for the rental property sale.

[hp100]

I inherited a house in 2020 and rented a part of the house,  the rest of the house has been vacant.  I sold the house in 2021.  I used the TT with rental income and depreciation for 2010 income tax.  I am using TT for the long term capital gain for the sale of the inherited house and depreciation.  I inspect the 1040,  I do not see any recapured amount.  Question is how to enter the recaptured amount in what form ?  Where am I doing the wrong step?

[DianeW777]

The rental portion should be sold in the rental asset section. This will allocate the appropriate action on the depreciation portion.

Then the remainder of the rental house should be entered in the investment sale section.

Here is a sample of the proration of the sales price, although it's discussing rental you can add the inherited portion of the house to find the figures for both.

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.

The sale of inherited property can be entered using the following instructions.  

1. Open or continue your return (you can choose the Search box and type 'sale of second home' then use the Jump to link to enter your inherited sale) or follow the menu.
2. Under Wages & Income scroll to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
3. Answer Yes on the Did you sell any stocks, mutual funds, bonds, or other investments in 2021? screen
   • If you land on the Your investment sales summary screen, select Add More Sales
4. On the OK, let's start with one investment type screen, select Other, then Continue
5. On the Tell us more about this sale screen, enter the name of the person or institution that brokered the sale
6. On the next screen, select  Other (choose this also for inherited homes) then select I inherited it under How did you receive this investment?

[hp100]

I think what I did is same as what you are saying.  Basically there are two elements of income, 1st is from the sale of the inherited house,  2nd is rental income for 15 months.  TT calculated depreciation was $50 in 2020, $76 in 2021.  I saw the effective rental incomes in 2020, 2021 were reduced by the depreciation, but I did not see the recapture in my return when I sold, it did not generate the form 4797.  I thought TT automatically was generating form 4797 with recapture.

[DaveF1006]

To clarify, what version of Turbo Tax are you using?

[hpaik100]

TT windows premium.  My mother used to live in the house, I inherited after she passed away, I rented out a part (~ 20% of the house) of the house and the rest of the house was vacant. I sold the house.

In 2020 and 2021, I have a rental income and report by sked E (without setting up the rental business).  In 2021, sold the house and report the long term capital gain.  Should I set up the business when I rent out a part of the house ? —- not sure?

It seems ok calculating thr deprecation in 2020, 2021.  But it does not recapture the depreciations in 2020, 2021 when calculcating the capital gain.

[hpaik100]

Read your instructions very carefully several times, I got the idea how to calculate the tax. Basically divide the house into two sets, one is rental and non-rental.  Here are my another questions,

1. Rental part:  had a rental income, paid no tax, took the depreciation.  I had a very small rental income and paid no tax.  So do not need 1116 and TT will automatically recapture the depreciation, right? 
2. Non-rental part: It generated the large capital gain, paid the tax, will use 1116 to take the foreign tax credit.  This income category is “passive”, right?

[RobertB4444]

1.  Assuming this is a foreign rental then you are correct - you need no form 1116 if you paid no foreign tax and TurboTax will automatically recapture the depreciation.

2. The income category is passive unless you are a real estate professional.