sale of rental home

[jl1126]

I sold a home in 2022, which had several years back been my primary residence but had been rented on-and-off since 2009 (and I have not lived in it since then). The sale closed in May 2022 and I had collected rent for the months prior to that in 2022. I saw another posting about how to report this, but it wasn't clear whether I could use TT Deluxe or would need to use Premier or other version. Also, the home was initially purchased (built) in 1989 with my ex-husband, but I was the sole owner of the home starting in 2001 having received it "at arms length" as part of our divorce settlement. How do I determine the cost basis of the home for the purpose of the 2022 sale - is it the value at the time I became sole owner (and if so, how would I determine that??)?

[Anonymous_ · Accepted solution]

You might want to consider using a tax professional for your return preparation for the 2022 tax year as you have a somewhat complex tax scenario.

See https://taxexperts.naea.org/listing/service/individual-tax-preparation

You cannot take advantage of the home sale exclusion since you have not used the home as your main residence for two out of the last five years leading up to the sale, you have a depreciation recapture issue as a result of having rented the home, and your basis will have changed each time you removed the home from service as a rental and then placed the home back into service. 

You would typically have a carryover basis initially, but you really should consult with a local tax professional.

[jl1126]

It was really only "out of service" for short times (at most a few months) while I was looking for new tenants. Does that change the situation?

[Critter-3]

No ... being rented is not required as long as if the property was available for rent while on the market.  And you should have a depreciation worksheet showing all of the basis on the home + improvements done along the way so in the TT program you will sell off all the assets.   If you did not take depreciation then RUN to a professional tax preparer for help in fixing this massive error. 

[Anonymous_]

Those short time periods between tenants are irrelevant provided you did not take the property out of service as a rental (i.e., the property was available for rent). Thus, that indeed does make the scenario less complicated.

Regardless, how did you file in prior years? Hopefully, for example, you were reporting rental income/expenses on Schedule E and taking depreciation deductions. Is that the case?

[jl1126]

Yes, I've been using TurboTax Deluxe and answering all questions related to rental income and expense, depreciation, etc. Don't remember for sure if that got put on Schedule E (since TT does that stuff automatically); would have to look at the actual returns but Schedule E does sound familiar.

[Critter-3]

Ok ... if you did put it on the Sch E then in the rental section you will (1) enter at least 1 day of renting (even if there were none) to keep it in the system and then (2)  in the asset section you will sell off all the assets by dividing up the selling price and selling costs using the same total ratio as the total basis to individual asset.

Cost basis =  purchase price + cost to buy + improvements

Adjusted cost basis =  cost basis -  depreciation taken

Sales price - ( cost basis + cost to sell )  =  profit or loss

Profit - depreciation taken = cap gain 

Depreciation is taxed as ordinary income not to exceed 25%.

Cap gain taxed at no more than 20%.

Ok ... a simple example of ratios ...  if you have more assets than the example then you will have more lines.  Remember if you divide a big number into a littler number you get a % ...  thus 5000/100,000 = 5%

       original  cost basis          ratios                  Sales price             cost of sale 

home    80000                   80%                          160,000               8,000

land       15000                   15%                           30,000                 1,500

roof        5000                        5%                           10,000                   500 

totals     100,000                100%                        200,000               10,000

All you need to enter into the program is the % of sales price & % of cost of sale for each asset being sold and you will have to do the math yourself as the program will not do it for you if you have more than one asset (the land & building are considered 2 assets) . 

[jl1126]

Thanks! I take it, then, that I should be able to do this myself (or at least take a stab at it and then consult a professional if I get stuck or am worried I'm doing something wrong) in TT Deluxe? Or do I need Premier?

[Anonymous_]

If you are using an online product, you need Premier.

[Critter-3]

If you have been using the online program all these years then you must have been using the Premier version which is what you still need. 

[jl1126]

I have not used online TT. I've been using a downloaded version, TT Deluxe. Is there a reason I should switch to online, and if I stick with downloaded, can I use Deluxe or do I need to purchase Premier?

[Anonymous_]

You do not need to switch and can continue using the downloaded version of Deluxe.

[DoninGA]

---

@jl1126 wrote:

I have not used online TT. I've been using a downloaded version, TT Deluxe. Is there a reason I should switch to online, and if I stick with downloaded, can I use Deluxe or do I need to purchase Premier?

---

You can continue to use the TurboTax Deluxe desktop edition for the rental property.

[jl1126]

Just started trying to enter my info into TT Deluxe (PC version downloaded). I paid a few different contractors for repairs to get the house ready to sell. It looks like for any payments to contractors that were over $600 I have to file a 1099-NEC. Is that actually the case, and if so, how do I do that? The process for submitting electronically through the IRS (apply for a TCC in order to create a FIRE account, etc.) looks pretty complicated. I guess I could just fill out the forms on paper and mail them (to the recipients and to the IRS), but that too seems cumbersome. Is there a way to do this via TurboTax (preferably without purchasing a different TT product)?

[ThomasM125]

You do need to provide form 1099-NEC's to self-employed contractors once you pay them more than $600 for work performed.

You can use Quick Employer Forms to prepare your 1099-NEC's. You can access the software from within your TurboTax online program by entering Quick Employer Forms in the Search box on the upper right corner of your menu bar where you will find a link, or you can follow these steps in TurboTax:

1. Find the Federal section of TurboTax

2. Choose Wages and Income

3. Edit/Add your self-employment income and expense entry

4. Edit the self-employment entry you made

5. Edit or add Contractor Labor Expense

6. You will see an option to Help me prepare and file W-2s and 1099's, choose that option