I sold a rental property for $170K in 2020 that I bought six years ago for $54K. Over that time, put in about $60K in capital improvements. I cannot figure out where to input the capital expenses to offset the capital gains. Only about $15K was spent in 2020.
In most cases, the sale of Rental Property is sold in the rental section and you sell the 'asset' of the house. However, if the property was originally a personal-use property and it converted to a rental property when the Fair Market Value was less then the Cost Basis (usually the purchase price plus cost of improvements before it was a rental), it is reported in the "Sale of Business Property" section.
Go into the "asset" for the property in the Rental section, and indicate that you sold it. When you get to the screen that asks about "Special Handling", say YES. Then it will ask you to enter the date of the sale (do NOT enter the sales price).
Now figure out how much depreciation you took on the property, including the current year. It may be helpful to print out the 'Depreciation and Amortization' worksheet (you will need to pay before you print it). It is the side-ways worksheet.
Then go to "Sale of Business Property" and enter the information that it asks for, using your purchase price ($170,000) for the original basis (you may need to subtract depreciation from that to get your "adjusted basis", I don't remember exactly how it asks for the information).
Thank you for this q and a!
Can I ask something what is the difference between sale of business property and sale of rental property section? Which section to use? We never lived there, just rented. Thank you in advance
Sale of business property with a loss is reported on form 4797 while property that was held for investment purposes would be on form 8949. For details see Sale or Trade of Business, Depreciation, Rentals | IRS
You need to return to your rental property and edit.
- Scroll down to assets/ depreciation, edit
- Go to asset summary, yes, continue
- Select the house, edit
- continue, continue, continue - basis adjustment in this area, if needed
- Tell Us More About this Rental Asset
- Select the box beside the item was sold, retired....
- Fill in the date you sold box
- Special Handling Required? No
- Home Sale? No
- Sales Information, enter sales price and sales expenses, continue
- Personal residence? No
You sold all the assets you were depreciating when you sold the house. You will need to go through and mark each item as sold. The other items will have a sales price of zero.
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