Rental Property Sales Information Step

[zenmster]

Under "Sales Information" there are four lines to enter info:

1. Asset Sales Price (business portion only)

2. Asset Sales Expenses  (business portion only)

3. Land Sales Price  (business portion only)

4. Land Sales Expenses  (business portion only)

What is the diff among all these?  Say I sold my rental property in question for $500.00

And it cost me $350 to get the place ready to sell (e.g., painting, counter replacement, replacing appliances, hiring an interior designer, etc...) - I'm assuming I enter $500 in line #1 and $350 in line #2.

?????

Then what do I enter in Lines #3 and #4? 

Thanks in advance. 

[ColeenD3]

No, that is not correct. Your sales price is $500. Out of that $500, $400 was for the building and $100 was for the land. 

Added to the basis are the major improvements, like the counter replacement. You have the choice of adding the appliance or treating it separately. The repairs and designer are not deductible, nor are they added to the basis.

Your closing costs on your HUD are prorated. If the total was $50, then $40 goes to the house and $10 is applied to the land. since land is not depreciable, it has to be treated separately.

The following items are some of the settlement fees or closing costs you can include in the basis of your property.

• Abstract fees (abstract of title fees).

• Charges for installing utility services.

• Legal fees (including title search and preparation of the sales contract and deed).

• Recording fees.

• Surveys.

• Transfer taxes. Intangible taxes.

• Owner's title insurance.

• Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.

[zenmster]

so the $400 bldg/$100 land ratio- is that based on the initial assessment or where does that ratio come from? 

[ColeenD3]

The ratio is determined at the sale date. You should have done the same thing at the purchase. Anything can happen between the purchase and the sale. The land could increase in value, decrease or stay the same. 

Please see this answer from DianeW.

The taxable value probably does not indicate the value of the land based on your statements.

If you do not have any information to determine land value, the IRS auditor will not have any information either.

Percentage allocation is one way to make a decision. 

If your personality is aggressive, you may want to allocate 80% of the value to the building and 20% of the value to the land. If your personality is conservative, you may want to allocate 60% of the value to the building and 40% of the land.

Separating cost of land and buildings.   If you buy buildings and your cost includes the cost of the land on which they stand, you must divide the cost between the land and the buildings to figure the basis for depreciation of the buildings. The part of the cost that you allocate to each asset is the ratio of the fair market value of that asset to the fair market value of the whole property at the time you buy it.

  If you are not certain of the fair market values of the land and the buildings, you can divide the cost between them based on their assessed values for real estate tax purposes.

Example.

You buy a house and land for $200,000. The purchase contract does not specify how much of the purchase price is for the house and how much is for the land.

The latest real estate tax assessment on the property was based on an assessed value of $160,000, of which $136,000 was for the house and $24,000 was for the land.

You can allocate 85% ($136,000 ÷ $160,000) of the purchase price to the house and 15% ($24,000 ÷ $160,000) of the purchase price to the land.

Your basis in the house is $170,000 (85% of $200,000) and your basis in the land is $30,000 (15% of $200,000).

I’ve included a link to the IRS website for your reference:  Click here for Residential Rental Property information.