Sale of Rental Home

[johnkfarr]

Expenses/assets screen for rental home sale Schedule E asking for land value as well as asset value. I just sold the home, have no idea of land value. It also asks about business portion, which I assume is 100% because it's only been an rental property. Some please explain, Thanks!

[ColeenD3]

Yes, if it has only ever been a rental, then use was 100%.

When you initially set up the rental property, you would have separated out the land, since the land is not depreciable. You can use that as a starting point to calculate the land value now.

If you don't think there has been any change over the years, you can use the same percentage you initially did.

If the purchase price was $200,000 and the land value was $20,000, then allocate 10% of the sales price to land. If you think that that land has increased in value in relation to the house, you can increase the percentage.

[Mike9241]

you may have over-depreciated the home.  when you purchased the property you were supposed to enter the total cost of the property and then in Turbotax, you were supposed to enter the land value on that line so only the house was depreciated.  as an alternative, you could have entered just the cost of the building exclusive of the land.

so what did you do with the land cost when you bought it. that will affect how the sale is reported

[johnkfarr]

I just went back and looked, I did enter the total price and then the land price 14 years ago.

[johnkfarr]

So I entered it in the asset/depreciation screen. It came up as owing some huge amount, no place to enter basis info and adjustments or expenses from the sale. My expense sheet from the title company also lists the payoff as an expense, but that's not relevant to the capital gain situation, correct? There must be somewhere else to enter the sale details.

,

[JamesG1]

@johnkfarr

The sale of the rental property is a sale of two assets, (1) the land and (2) the structure and improvements built on the land.  The land cannot be depreciated, the structure and the improvements can be depreciated.

If you reported the separate cost basis for the land and the improvements, then you must allocate the sales price and the cost of sales between the land and the improvements at the screen Sales Information.

The two sales are reported on IRS form 4797.  The land sale is reported on page 1.  The sale of the structure is reported on page 2.  Note that Part III line 22 will report the recapture of the depreciation you have taken on the building since the rental asset was first reported.  This recapture is reported as ordinary income and may account for the 'huge amount' that you saw.

See also this help.

[johnkfarr]

Thanks for the reply, it clears things up a little. I did break out the land and building separately 14 years ago when I bought the property and have been deprecating yearly since. I don't understand where the land price at sale comes into play, all that should matter is the amount of deprecation to be recaptured, the total taken was $52,000. I understand that that is taxed at a different rate than the capital gains, is there anywhere in the forms that breaks those amounts down? The 4797 seems to only show a total profit, not the separate tax for recapture and and capital gain.

Thanks,

John Farr

[RaifH]

Different areas of Form 4797 flow through to different sections of Schedule D. Recaptured depreciation which is on line 22 of Form 4797 as @JamesG1 said above flows to the Schedule D Line 19. This is the amount of your gain that you should be paying your ordinary tax rate on. Both the land sale and the gain on the home over and above the recaptured depreciation are reported as long-term capital gains on which you pay the lower capital gains tax rate. 

[johnkfarr]

Thanks so much, that was helpful. Looking at schedule D work sheet shows me a lot. I entered the sale info in schedule D, I still don’t see a place to enter the land percentage of the sale, I don’t know if it will make a difference, but the recapture of depreciation has really dinged me. 
John Farr

[AmyC]

The program carries the information to the sch D. The land is entered when you do the sale of the asset. All assets must be sold. Only the house has a sales price. All other assets will be sold for $0. Please go back to your rental and go through every asset and mark them as sold and go through the sales section so that you can input the correct land values.

[johnkfarr]

Thanks for the reply. I'm still confused, though. I reported this sale on schedule D, not E, as another poster advised. There was no place on the D to report land value as opposed to sale price. Should I go back and enter the sale on the E, and does that automatically move to the D to finish it there? There is no place I can see on schedule E to enter basis or sales cost information.

John Farr

[ThomasM125]

You do need to enter the sale in the rental section of TurboTax.

You need to edit each asset and you will see a screen that says Tell Us More About Then Rental Asset. On that screen, there is an option that says The Item was sold, retired, etc... Check that box and continue and later you will be asked to enter the sale proceeds. When you are done with each asset sale, the gain will appear on schedule D.

[johnkfarr]

OK , I'm still lost here. I'm on the page you describe. First line is asset sales price. Is this total of land and house or house only? Second line is asset sales expense. Is this just sales expenses or total basis including purchase price of home and improvements? If not, where do I enter that information? Later? Third line is land sales price. I just took the purchase values for house and land and used the percentage to come up with land sales price. Fourth line is land sales expenses. Is this just that same ratio multiplied to get land portion of expenses? I appreciate your help, I've done my very complicated taxes with turbotax for 20 years, but this home sale has me flummoxed.

John Farr

[DaveF1006]

It depends. Let's answer each question individually.

1. The sales price is the total for the land and building.
2. The sales expense is your closing costs incurred for the sale of the house, which are normally on your settlement statement. You can deduct sales costs except for mortgage and property taxes. Those are deducted elsewhere.
3. You used the correct method to break out the land sales price.
4. Yes, use the same ratio for determining land sales expenses. 

Please read this IRS link for a list of closing costs that can be deducted under the heading of Fees and Closing Costs.

@johnkfarr

[johnkfarr]

So I did as you said and it came up with some ridiculous amount. The interview is not taking me to anywhere I can enter basis and capital improvement expenses. Where do I go to enter that information?