Sold my duplex last year, lived in one half as my home, rented other half, both for 20 years

[psyadam]

In entering the sale of duplex, for the rental unit (which I did a 1031 exchange), I do this under the 'depreciation' section. Setting is the automatic 50% for half home and half rental.

1. Asks for Asset Sales Price (business portion only), Asset Sales Expenses (business portion only), Land Sales Price (business portion only) and Land Sales Expenses (business portion only).

Not sure how to separate out 'asset' and 'land', please advise.

I'm also assuming that 'business portion only' is simply half.

2. Not sure where to enter the 1031 exchange.

3. Not sure where to enter the home sale for the half that is my primary residence for past 20 years (so that I can put in the cost basis, remodel costs and the $250k deduction I take as homeowner).

Please advise and/or share links to how to enter all of this if they exist.

Thanks so much,

Adam

[psyadam]

Half of full sales price I mean. Or does TurboTax need full sales price and takes half automatically like it does with other expenses allocated?

[DianeW777]

Yes, you will treat this as two separate sales: Treat each section of your duplex as separate sales (rental and home sale) splitting in half sales price, sales expenses, capital improvements that affect the entire duplex such as a roof, purchase price, purchase expenses, etc. for each entry. If there were capital improvements specifically for the home those costs should be added to the home cost basis. It is assumed that any specific expense for the rental portion have already been added to the depreciation schedule.

Let's review each question. 

1. The easiest way to find your selling price is to use the tax assessment for land and building. Divide each by the combined total to arrive at the percentage to use for each, then divide that in half to represent each part of the property (home and rental).
2. 1031 Exchange information: Key situations triggering capital gains tax include: 
   1. Receiving "Boot" (Cash/Debt Reduction): If you receive cash, personal property, or if your mortgage on the new property is less than the old one, that difference is taxable.
   2. Trading Down: Purchasing a replacement property of lesser value than the one sold 
      • What is a like-kind (Section 1031) exchange? 
      • Where do I enter a like-kind or Section 1031 exchange?
3. The home sale is entered using the steps below. Where do I enter my Form 1099-S? See the home sale information below. 
   • The rules of capital gain exclusion for the sale of your main home must occur within five years in your situation. It's necessary to show the time that it was your main home.  Below is a summary of the requirements for exclusion of gain on your main home sale.

Exclusion amount: If you meet certain conditions, you may exclude the first $250,000 of gain from the sale of your home from your income and avoid paying taxes on it. The exclusion is increased to $500,000 for a married couple filing jointly.

Key Eligibility Requirements: IRS Publication 523

1. Ownership: If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement. For a married couple filing jointly, only one spouse has to meet the ownership requirement.
2. Use: If you owned the home and used it as your residence for at least 24 months of the previous 5 years, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period, and it doesn't have to be a single block of time. All that is required is a total of 24 months (730 days) of residence during the 5-year period. Unlike the ownership requirement, each spouse must meet the residence requirement individually for a married couple filing jointly to get the full exclusion.
3. Look Back Period: If you didn't sell another home during the 2-year period before the date of sale (or, if you did sell another home during this period, but didn't take an exclusion of the gain earned from it), you meet the look-back requirement. You may take the exclusion only once during a 2-year period.
4. Exceptions - May not apply to you and can be reviewed at the link above.

[psyadam]

Thank you I will follow up on your suggestions.

Question regarding 'boot'.  I purchased a new rental property which was more than half the price of the duplex sale, so more than the rental sale portion. However, I did not take a mortgage out on that, but still followed the 45 day 1031 requirements and have that confirmation form from the escrow. Are you saying because no mortgage it it taxable gain? That confused me.

And yes, TT has been doing the depreciation over the years, but I will have to look for the receipts for the expenditures, half of which were depreciated, so that I can go against basis of other half of duplex.

Question: The home is one depreciable item under the business property, so is 'new garage doors' 'window treatments', etc. Assuming I close them out as well as 'taken out of service' due to sale? 

It asks, 'was this asset included in sale of your main home?'

It was in the rental unit so that would be a 'no' ?  And if so, then it wants a price for it which I can't do because fully depreciated and not separated out in sale of duplex. Confusing a bit.

Thanks,

Adam

[psyadam]

Still not sure where to enter the 1031 exchange information though. Assuming that the recaptured depreciation would be rolled into that as well, so not sure about how to close out the new dishwasher for renters or new roof (since wants to know how much I 'sold' roof for in closing out that depreciation.

[AmyC]

1. No, the boot cash is what you receive as down payment for the sale, not what you paid for the replacement.

2. Yes, all the items must be taken out of service. 

3. Correct, not sale of main home items. Rental assets -mark them sold/ converted for $0. Dishwasher, roof, all of it.

4. Recaptured depreciation -usually reduces the basis of the new property. If your new property is raw land, there are exceptions or if your rental had a segregated study done. These are not common.

5. Entry is tricky to find. Please see another post of mine here.

[psyadam]

Thank you.

When trying to close out the depreciation of the rental half of the duplex, it asks:

Special handling required?  and one example is a 'rental inside a home' which confused me as duplex has two units, one rental, one my home, so assuming 'no' for the question for the rental unit as well as dishwasher and other depreciated improvements.  Is that accurate?

Followup question TT asks is: was this asset included in sale of your main home? which I'm also assuming is 'no' as separate units but wanted to make sure i'm just not confused. 

Thanks,

Adam

P.S., I bought the Advantage version of TT this year, does this include free phone support to run by all of this to make sure I'm good?  I think your responses are sufficient but just wanted to double check. It also offers $50 'Live Tax Advice' but I don't need advice, just clarity on how to fill out the section of TT.

[DianeW777]

Yes, you are correct. Treat the rental portion of the duplex as a completely separate property and continue to answer the rental questions as though that was your only sale. You are dealing with two completely different sales even though one portion is rental and the other is personal.

No, the asset was not part of the sale of your main home. You are understanding the questions accurately.

This link will cover the TurboTax Advantage benefits. Also here is TurboTax Desktop Live Tax Advice.

@psyadam 

[psyadam]

I filled in the 'like kind' portion of TT to account for my 1031 exchange, yet it still seems to have raised my taxable income substantially when the 'like kind' should have create a zero taxable income increase. 

End of the like kind says: your like kind exchange results: 'no taxable gain'  yet I also have an increase in federal tax due of like 15k so not sure what is still lacking in my input.

Note: I wasn't sure how to calculate AMT adjusted basis (do I just add the total depreciation deducted over 20 years or ... ?) so didn't include it yet. 

Also didn't include 'fair market value' although Zillow would give value as higher than I sold it for.

Entered the sale of the 'home' part of the duplex and that was close to zero profit based upon the 250k deduction I took as homeowner, so that part good, just the rental part still not quite right

Thanks so much,

Adam

[DianeW777]

For rental property the alternative minimum depreciation (AMT) and regular depreciation will be the same number.

Make sure you selected 'Special Handling' so that the asset sale gains do not move to the tax return.  Here is a step-by-step entry to review.

When you have your TurboTax return open you can use the following steps to update the original assets for the exchange.

1. First use the Search (upper right) > Type rentals > Press enter > Click on the Jump to... link
2. Or Wages & Income > Rental Properties and Royalties > Update > Continue to Rental and Royalty Summary > Edit the property
3. Scroll to Assets/Depreciation  > Click Update > Select 'Edit' next to each asset
4. Edit beside each asset > Continue to the Tell Us About This Rental Asset
5. Select the checkbox beside 'This item was sold, retired, .... traded in ....etc. > enter the date it was traded (sold/retired)
   1. If you did replace your rental in the trade with a new rental: You can choose not to select this and just change the name of the assets given up in the trade to identify them with the new property. The depreciation for the year will not change on these assets.
6. Answer the question about whether it was 100% business > Leave the original date it was placed in service (may be purchase date or later depending on your circumstances)
7. Continue to the screen 'Confirm Your Prior Depreciation'  
   • The amount displayed is only for prior years and does not include the current year. 
   • Continue until you see the current year amount displayed and make a note to add the two amounts together for the Section 1031 like kind exchange.
   • This completes the asset portion of the trade.
8. Answer 'Yes' to Special Handling.

Next you will complete the like kind exchange, Form 8824 (Section 1031 exchange):

1. Use the Search (upper right) > Type like kind > Press enter > Click on the Jump to... link
2. Select the checkbox beside 'Any additional like-kind exchanges (section 1031)' > Continue
3. Complete the information for the 'Real estate given up'  and 'Like-Kind Property Given Up' > Continue
4. Name the event > Continue > Complete the information for the 'Like-kind property received'
5. If you did not give unlike property in the exchange click 'No' and  continue past these screens, if 'Yes' answer the questions.
6. Enter any exchange expenses (sales expenses) > Continue to see your deferred gain.

@psyadam 

[psyadam]

In looking at the 8824 Like Kind Worksheet, because the 1031 exchange property purchase price was significantly more than the rental half of duplex sale price, it lists on line 15F 'Cash Given' figure and AMT 'excess basis' to be added to basis of new purchase. Not sure if that is why additional taxes owed even though says I'll have to pay that later in sale of new rental property?  Trying to figure out why more taxes owed so sharing that data.

Thanks,

Adam

[psyadam]

Thank you I will look at that, as Form 4797 adds a 122k capital gain for 'sale of business property' even though 1031 exchange.

Note: see next response from me, as did what you suggested and still have this 122k capital gain from sale of business real estate  on Part 2, line 11 of Schedule D, which should be eliminated through the 'like kind' 1031 exchange so either I did something wrong or TT has a bug or ... 

Thanks.

[psyadam]

Followed your recommendation, but the sequence you recommended doesn't seem to be happening on my desktop TT Home & Biz on my Mac.

After I click on 'item is sold', disposition information with the dates, goes to 'special handling' which you have a few clicks later.

If I click 'yes' it tells me my depreciation for the year and then takes me back to the main deprecation page. If I click 'no' then it asks for sale price, etc.  So you saying click 'yes' doesn't get to sales price, etc. so not sure what to do here.  

AND if I follow through on the 'no' it still seems to raise my tax bill substantially even though I do the 1031 like kind section.  So something still not working as also tells me 'no taxable gain'  but 'deferred gain' that will go against the new property, yet I'm being taxed someplace in TT for this.

[DianeW777]

When you click 'Yes' to Special Handling, it stops the asset depreciation, does understand it should stop and does not calculate the Section 1031 information. The steps above on February 25th will walk you through the process. If you deviate from that, it may be the reason you are showing taxable gain. I agree, you paid more for the property you received than the property you gave up was worth (based on your statements). In this case there would be no taxable gain.

In the trade is there a rental space or simply your new home?  This is important to handle the Section 1031 like kind exchange. The information below may be helpful.

Depreciation Rules:

The basic concept of a 1031 exchange is that the basis of your Old Property rolls over to your New Property. In other words, if you sold your Old Property for $100,000, and bought your New Property for the same, your basis on the New Property would be the same. It makes sense then that your depreciation schedule would be exactly the same, and does not change! In other words, you continue your depreciation calculations as if you still own the Old Property (your acquisition date, cost, previous depreciation taken, and remaining un-depreciated basis remain the same).

Buy Up or Boot: 

If you 'buy up' in your exchange (your New Property cost more than you sold your Old Property), the answer is easy – you treat the buy up part as you would a new addition to an existing property. In other words, you treat the amount of the buy-up the same as you would the cost of construction, for example, of a garage added to an existing house – the cost is the amount of the buy-up; the date you start depreciating it is the date you purchased the new property; and the depreciation method you use is the method most appropriate for that type of property in the year you bought the New Property (regardless of the method you used for the original house). If you think of it this way, then it's easy, even if your property is a large office building or a more complex purchase.

• IRS Fact Sheet-Section 1031

@psyadam