Sold a rental condo and all the listed assets with the condo. Need help with allocation of sold price across all assets.

[LoriMar]

I sold a rental condo in 2021 that I’ve depreciated for 13 years. I’ve used TT for all of the years, so it has retained all of the cost & depreciation information from the start, everything. There is a long list of assets that I entered when it was purchased, they include renovations (eg. Kitchen Reno, master bedroom Reno…), furnishings, appliances, etc. PLUS there is an asset entry for the condo building itself. I understand that for the sale of this condo, to get accurate gain and depreciation recapture, I need to allocate the sold price of the condo across all of the assets. So, for each asset (except the condo building asset itself), I answered “yes” to the question “did you stop using this asset in 2021”, entered the date of sale, then entered for the “sale price” the cost of the asset I initially entered when it was acquired. The sales prices of these assets (except the asset condo building itself) totaled $53,971. Since we sold the condo for $500,000, I subtracted $53,971 from $500,000, and that is the sales price I entered into the condo building itself asset, so that all assets, including the condo asset, would total $500,000. Did I do that correctly? Or should I still enter $500,000 into the “sales price” field of the condo building asset itself?

[DianeW777]

You have the right idea, however you must allocate the selling price (and selling expenses) to all the assets that are part of your rental and it's quite easy.  Below is an example of how to do that.

Use the original cost of each asset listed on depreciation, add those together then divide each one by the combined total to find the percentage of the cost for each asset.  Use that percentage times the sales price and sales expenses to find the selling price/sales expenses for each asset.

Example:  Original Cost (of each asset on your depreciation schedule)

$10,000 Land                = 13.33% 

$50,000 House              = 66.67%

$15,000 Improvements  = 20%

$75,000 Total                 = 100%

Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.

I hope this example provides clarification to enter your sale.

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Income & Expenses
2. Under Your income and expenses, scroll down to
3. Rental properties and royalties, click Edit/Add
4. Do you want to review your rental?, click Yes
5. Under Rent and Royalty Summary, click Edit
6. Click Update to the right of Assets/Depreciation.
7. Do you want to go directly to your asset summary?, click Yes and Continue
8. Click Edit to the right of each asset to be disposed
9. Go through several screens until you get to Tell Us More About This Rental Asset
10. Click on This item was sold…….   And continue to answer the questions

You might also review information here.

[Mike9241]

general guidance on entering the sales price of the furnishings and fixtures sold.  the sales price you allocate to them is their Fair Market value on the date of sale.  most of these types of assets do not appreciate over time. they depreciate - used property. so you have to use your best estimate for these.  my own opinion is that these values would be what the value would be if donated to charity.

whatever amount you allocate to the furnishings subtracts from the sales price allocated to the building and land.

does it make a difference if the allocation between the real property and the furnishings is changed?

it may. gain on sale of furnishings to the extent of depreciation taken is section 1245 gain - tax at ordinary income rates. gain on sale if real property to the extent of depreciation taken is section 1250 gin. 1250 gain may get a more favorable tax treatment than 1245 gain. the maximum tax rate on 1250 gain is 25% or less if you are in a lower tax bracket. the maximum rate on 1245 gain is the marginal tax bracket you are in which could be 37% or more.

the only way to know is to change the allocations and see what that does to your federal and state tax liabilities. however, the IRS does require that the allocations be realistic so you can't artificially allocate to minimize your taxes.

[LoriMar]

Thank you so much. That makes good sense that the assets would not be worth what they were when we installed them, so I can make a better judgement on what the Sales Price for each would be. I noticed that does make a difference in the total of gain when I put nothing in the sales price field. The Gain went up. Should I include some of the sales expense in the individual assets as well, spread that over all the assets? The post above mentions a formula that does that. But ultimately, the sum of all of the assets "Sales Price" should equal the total sold price of the condo, $500,000, correct?

[LoriMar]

Thank you very much for this formula. I will try it out, I appreciate your help!

[LoriMar]

meant to add  @DianeW777 thank you very much for the formula, I will try it out. I may come back with another question 🙂