Sale of a rental property

[paul136mc]

Hi All, we sold a long owned rental property in 2021, reported the interest then.  In 2022 they got a loan and we received the payout.  Cannot figure out in Deluxe how to report this income and pay capital gains.  Thoughts?   Thanks a lot, paul

[DianeW777 · Accepted solution]

A sale of property will require TurboTax Premium if you are using the online version. For TurboTax Desktop you can use Basic or higher.  Instructions for entry of your sale are included below for the rental property.

The IRS requires that the selling price be proportionately prorated to arrive at a selling price for each 'piece' of a rental property since many assets can be placed in service at different times, such as your roof.

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.

I hope this example provides clarification to enter your sale.

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Income & Expenses
2. Under Your income and expenses, scroll down to
3. Rental properties and royalties, click Edit/Add
4. Do you want to review your rental?, click Yes
5. Under Rent and Royalty Summary, click Edit
6. Click Update to the right of Assets/Depreciation.
7. Do you want to go directly to your asset summary?, click Yes and Continue
8. Click Edit to the right of each asset to be disposed
9. Go through several screens until you get to Tell Us More About This Rental Asset
10. Click on This item was sold…….   And continue to answer the questions

You might also review information here.

[paul136mc]

Thanks so much for the good reply Diane.   I had a turbo-tax full service agent working on it  who has backed out by email this am , at least till we file extensions.. difficult to know how much to prepay though.  He states we also need to file an amended return for 2021 showing the "installment sale" .   We declared the interest-only we received last year.  I presume we wouldn't owe the cap gains until we received the money this year.   Pretty sure I'll need help to get this done.  Meanwhile I'll file the extensions and empty the piggy banks to pay a bunch up front with the extension.... thanks again, Paul

[DianeW777]

Not exactly.  Capital gain is required to be reported in the year of sale to the extent of any depreciation claimed on the rental property.  Any gain in excess of that amount can be reported on the installment in the year of sale and forward until paid in full (2022 per your notes).  This creates an urgency to complete your amendment since the actual sale date is 2021.  Double check your documents for the actual sale date.

I'm glad I was helpful.  It may be a good idea to seek assistance for your amendment and the current year to ease your concerns.

[paul136mc]

thanks for that addendum, Diane.  I filed extension today with enough payment to hopefully cover our obligation....  I'll get on the amended return.   Looks like we may have a payment and a penalty due for 4/21 sale date.   I used turbo tax and I thought i declared the sale somewhere on there, but maybe not.  We didn't have a lot of depreciation we'll apparently own on.   We spent a lot getting it ready for sale so that should reduce our tax liability I presume.  I will try to get some help.   Thanks again, Paul