Rental property sale capital gain - too high??

[AZ19]

I cannot figure out how TurboTax is coming up with a $162k gain for my rental property when completing calculations within that section. It was purchased in 2012, converted to rental property one year later in 2013, sold in 2020. 

Shouldnt the gain be as follows?

335,000 (sale price in 2020)

-160,000 ($185k purchase price in 2012  minus $25k depreciation)

- 28,000 (sale expenses in 2020)

= $147,000

Then on the main "Wages & Income" screen it also states my Sale of Business Property is $193k despite the "gain" being stated after the calculations in sale section saying $162k... help!

[Anonymous_]

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@AZ19 wrote:

Then on the main "Wages & Income" screen it also states my Sale of Business Property is $193k despite the "gain" being stated after the calculations in sale section saying $162k... help!

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Ensure that you did not enter the sale twice; once in the Rental section and again in the Sale of Business Property section.

[Anonymous_]

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@AZ19 wrote:

-160,000 ($185k purchase price in 2012  minus $25k depreciation)

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Check your figures.

Your depreciation figure ($25,000) appears to be on the low side, depending upon when you placed the property into service as a rental and when it was sold.

The correct depreciation figure should be in the $40,000 range.

[Carl]

Without more detail, I can only speculate that you are confusing "gain" with "taxable gain", keeping in mind that the recaptured depreciation will be taxed anywhere from 0% to a maximum of 25%.

I've seen this type of confusion in the past.  Now I don't recall the detail, but I "think" you can see the details on the form 4797 with the results on SCH D. Again, not really sure on that.

I also can't recall if the recaptured depreciation is subtracted from the cost basis, or added to the sale price.

[Mike9241]

I agree with Carl $40K seems too low unless more than $70K was allocated to land.  the tax laws require you to pay taxes on the gain based on the larger of the depreciation taken or should have been taken. more depreciation increases your gain.   if incorrect depreciation was taken you need to see a pro ASAP because to correct the inaccurate depreciation requires the filing of form 3115. not an easy task to complete properly

[Anonymous_]

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@Mike9241 wrote:

.........$40K seems too low......

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It is too low, based upon the $185,000 cost basis at least.

[jg2007]

Hello, I was wondering if you were able to get resolution on this.  I find myself in a similar position:

I have a rental property I bought in 2003 for 169K.  In 2012 I put it into service for rent and have been properly claiming depreciation on it every year.

This past year I sold it.

Purchase price: 169K

Depreciation: 41K

Sales expenses: 17.5K

Sale Price:  350K

350K - (169K - 41K) - 17.5K.

The gain therefore should be approx $205K.

When going through the questions, Turbotax confirms the depreciation amount, etc. etc.  So everything looks correct.  But when I finish, and it shows up as income from selling rental property, it shows as $275K gain, as opposed to $205K.

And despite all my internet scouring, I can not get a straight answer.  A few forum posts like yours mention it, but I never see a resolution, or people just blame depreciation, but I'm pretty sure my depreciation stuff is correct.

[DianeW777]

TurboTax handles these sales when everything is entered correctly.  If you would like me to review your return you can provide a token so that I might review.  If you like you can direct it to me by using @DianeW777.

You can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, here are the instructions: 

TurboTax Online:

Go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number. 
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

TurboTax CD/Download:

If you like, you can send a copy of your return that will be scrubbed to eliminate your personal data by using these steps:

1. Click on Online in the top left menu of TurboTax CD/Download for Windows
2. Select 'Send Tax File to Agent'
3. Write down or send an image of your token number then place in this issue.
4. We can then review your exact scenario for a solution.

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

@jg2007

[jg2007]

sounds good!  But when I tried messaging you through this system, I type in DianeW777 and @DianeW777 and both say "member isn't found".  I have the token number

[jg2007]

am I supposed to just reply with the token number on this public thread?

[DianeW777]

Yes, please put your token number here in this thread and I can review. Keep in mind all of your personal information is scrubbed and removed from the file and only Tax Experts here at TurboTax can review it.

[Edited: 04/01/2022 | 6:39a PST]

@jg2007 

[jg2007]

So, I got help from another TurboTax person. 

but, for others, here was the resolution:

when answering the questions in the “rental and royalties” section, there was one question I answered wrong that had a butterfly effect and threw off the whole thing.

along the way, they ask what percentage you used the rental property for business in 2021.  Since I sold it at end of July, I put 58% there.  Since that was 58% of the year.  That was the mistake.  It hosed everything.  The answer in my case needed to be 100%.  As in 100% of the time I actually owned it in 2021, it was used for business.  

once that was fixed, the expected gain numbers all lined up with what TurboTax was saying.