Sale of Rental Property - Assets

[conf12345]

Hello, 

I sold my rental property late in 2021, and I had rented the property during the beginning of the 2021.  In Turbo Tax, I am having trouble reflected this in my 2021 taxes.  I am wondering how to handle the depreciation section of the rental income section. 

In addition to the property on my depreciation, I have a replacement HVAC and a hot water heater during the time that I rented it.  The HVAC and hot water heater were part of the sale but was not sold separately.  How do I handle in the Asset Sale Information for sales price and sales expenses?

Also, I have upgraded the floors, I thought this would increase the cost basis.  Where do I reflect this in Turbo Tax?

Thank you very much for your help.

[PatriciaV]

First enter your Rental activity for the year, indicating that you sold the property and the date of the sale.

Then go to Sale of Assets/Depreciation and enter your assets separately (home and each improvement) if you have not already done so. Indicate that each asset was sold and enter the date of the sale. This information is used to calculate the allowable depreciation through the date of the sale.

If you're using TurboTax for Desktop, you can print the Depreciation Report to use for the allocations below. If you're using TurboTax Online, you will need to pay for your return in order to download this form in PDF format.

After you allocate the sale proceeds and selling expenses to each asset (see below), return to the Sale of Assets section to complete the sale information.

You may allocate the sale proceeds and selling expenses using any reasonable method. Most taxpayers use the adjusted basis at the time of the sale (purchase cost less accumulated depreciation) to calculate the percentage of basis that belongs to the each asset.

Example:

1. Total Basis: $80,000 for home; $20,000 for improvements (both net of depreciation, $100,000 total)
2. Percentage of Home Basis: $80,000/$100,000 = 80%
3. Percentage of Improvements Basis: $20,000/$100,000 = 20%
4. Total Sales Proceeds (gross sales price) = $150,000
5. Sales Proceeds for Home = 80% x $150,000 = $120,000
6. Sales Proceeds for Improvements = 20% x $150,000 = $30,000
7. Total Selling Expenses = $10,000
8. Selling Expenses for Home = 80% x $10,000 = $8,000
9. Selling Expenses for Improvements = 20% x $10,000 = $2,000

If you have several assets, be sure to check your math so your total basis, sale proceeds, and selling expenses are correct.

[conf12345]

Thank you.  Something is off.  In my assets, the rental property when placed in service did not include the land portion of the property.  So, it is showing a much larger gain then it should. 

[PatriciaV]

If the land is not listed as an asset for your rental property, go back and add it. Then allocate a portion of the sale to the land. Note that land is not depreciated.

[conf12345]

Thank you.  I have the home as an asset type of I-Residential rent real estate, but Turbo Tax does not allow me to enter land cost - how do I add land to my Depreciation and Amortization Report? 

What kind of life should be replacement HVAC?  replacement hot water?  If the current life is incorrect how do you make the correction?

If after renting in 2021, there was an improvement to the flooring (upgrading it).  What kind of life should it be?  What is the date of service be for this asset?

Thank you

[conf12345]

When I include the land in the allocation for the sales proceeds, the allocation to the land increases significantly from 35% to 54.5%.   The rental property has been over 15 years of depreciation.  So, to allocate, you take the adjusted basis plus the land.  Is this the proper way to do it?

I figure out how to add the land to the depreciation worksheet.  But, for state depreciation on that sheet, it has my state where I am a resident and not the state where I am non-resident and owned this property.  How can I change to the proper state?

Thank you.

[JamesG1]

When allocating the sales proceeds over the various assets, use the original basis of the assets, not the adjusted basis.

For instance, your local property tax statement may report that the value of the land for the property is $5,000 and the 

value of the structure is $45,000.  If you sold the property for $200,000, the value of the land could be allocated as:

Land           $  5,000                 

Structure    $45,000

Total           $50,000

Land assumed to be 5,000/50,000 = 10%

10% X sales price of $200,000 = $20,000 allocated to cost of land.

At the screens Describe this asset and Tell us a little more about your rental asset, assign HVAC, water heater and flooring to Rental Real Estate Property / Appliances, carpet, furniture.  This assigns a five year useful life.  Other options may allow other useful lives.  

Date of service is the date that you started using the asset for business purposes.

Check the address reported under Rental property info.  Click Edit to the right to see  what state has been reported.

[conf12345]

The assessed value of land/building has changed a lot from tax records for property.  For example, the allocation was 35%/65% for land/building in 2000 and it is 11%/89% for land building in 2021.  What allocation do I use?

[Vanessa A]

You would use the 2021 amount since you sold it in 2021. 

[conf12345]

How do you allocate structure/land/improvements?  The tax records only provide allocation for the structure and land for 2021 the allocation is 90% for structure and 10% for land.  One person told me net of depreciation to allocate and the other said do not include.  So, with the example below, how do I allocate it.  The sales proceeds are $135,000 and selling expenses are $9,450

$65,000 for building when purchased depreciation of $41,000

$35,000 for land (no depreciation because land)

$5,850 for improvements when purchased depreciation of $1,050

[JamesG1]

These are the numbers for the allocation but I do not see that land is valued at 10%?

Bldg       $65,000         61%            $82,350         $5,765

Land      $35,000         33%            $44,550         $3,119

Improv    $5,850           6%               $8,100            $566

             $105,850       100%         $135,000        $9,450

@conf12345