Selling a joint own rental property

[Janette651]

I co-owned rental property with my ex-boyfriend.  We split the deductions each year.  We entered the full amount and then claimed 50% of the income and expenses.  We sold the house and each received 1099-S for half the proceeds.  I assume we both claim 50% of the expenses to go along with that.  The problem is when I enter half, it compares it to the values I entered when we put the rental in service (full value). When doing this it shows a large loss which isn't the case.  When I use the full proceed and expenses, it creates a rather large debt and I can't do that on both of our separately filed taxes. How do I claim this sale? I do both of our taxes

[DaveF1006]

It depends. I think the problem is that you put the full rental value when you put rental in service. That need to be adjusted in half also. Everything has to be reported in half for the calculations to come out correctly.

[Janette651]

So if I change the value of the property when purchased for this year, does it mess up previous tax returns?

if I put half the value, would I then claim 100% ownership and enter only half the income and expenses?

[DaveF1006]

Yes, it could especially when calculating the depreciation recapture. Just to clarify, when you reported at the full value, has the depreciation you each received over the years have always been allocated evenly from the full value of the house?

[Janette651]

It looks like I claimed the full amount of deprecation each year based on the full value enter previously. I assume I will be taxed on the deprecation I deducted

[DaveF1006]

Yes, that is correct if you claimed full depreciation on your return. Did your ex also claim full depreciation on his as well?

[Edited 03-31-2021|8:17 PM PST]

[Janette651]

No he did not.  I do his taxes as well.  We split all the other income and expenses 50/50. 

Do I need to go back and redo prior year taxes?

[gloriah5200]

Depending on the number of years you have been deducting incorrect depreciation, then you may need to file Form 3115 to Change your Accounting Method and adjust the depreciation calculations on the current year return and then continue to use the correct amounts on future years.

Re: How do I change the useful life of a depreciation item on a rental property? Previous tax pre...

Just a reminder that if you have been depreciating an asset for the wrong class life, you have two options:

If you have been doing it wrong for only 2 years, then you can amend the back year returns to correct and then go forward correctly.

If you have been doing it incorrectly for more than 2 years, in order to correct it, you will have to use IRS Form 3115 to Change the Accounting Method and adjust depreciation taken in year discovered and then future years can be handled correctly.

Please see information on Form 3115:

IRS Form 3115, Change in Accounting Method