Sale of Rental property

[okrandy]

I sold a rental property this year. The purchase price was $144,000.  The sales price was $146,000.  I owned it for two years and remodeled the master bath at an expense of $4,269. I entered the master bath remodel as a depreciable asset in TTax Premier.

1. Do I add the expense of the master bath remodel to the sales price I enter in TTax?

2. I know I need to add back in the depreciation taken (structure and land?). How do I do that?

3. Do I need to add back in the depreciation on the master bath remodel?  If so, how do I do that?

Thank you!

[DianeC958]

1) No, you do not add the amount of the remodel to the sales price. 

2) Yes, you do need to add back the amount you have taken for depreciation, which includes the amount that has been depreciated for the remodel of the bathroom.

3)  By going through the rental section and marking that you sold the property in 2019, TurboTax walks you through the information needed to calculate the amount of gain/loss, along with the recapture of depreciation.  Any asset that is part of the sale of the property needs to shown as sold. 

How Do I report the sale of rental property - TurboTax Support 

[okrandy]

Do I need to manually add back the depreciation?  How do I do that?

I went through everything. Bought the property for 144,000; sold for 146,000.  Spent $4,269 on bathroom remodel.  Prior depreciation is around $6,657.

Sales expenses were around $1,500.

I allocated the sale price between the house and the land.

It says I have a gain of $7.634 on the house and $766 on the land. I expected a slight loss since I spent more on the remodel that the difference between the purchase and sales price.  Is the gain in this case primarily driven by the prior depreciation that is used to lower the  basis?

Sorry the difficulty in following the details. 

[KrisD15]

Yes, since you need to recapture the depreciation, that results in a gain.

It doesn't lower the basis, it is "paid back" when you sell the asset. It is taxed as income, not capital gains. 

If you have been using TurboTax to report your Schedule E rental activity year after year, the program will adjust for the depreciation when you report the sale. 

The numbers you posted seem about right, the only concern I'd have is how you reported the 4,269 remodel. 

Did you enter that as a separate asset? If so, part of the sale would need to be allocated to that asset as well.

If you expensed it as a repair, then you don't have to worry about allocating any of the sale proceeds to the remodel. 

[okrandy]

Thank you. 

I reported the bathroom remodel as an asset so I will have to allocate some of the sales price to it.  That will result in a slight reduction in the value of the assets since the purchase price plus the remodel exceeds the sales price.  

Thank you again.