Sold rental property question

[jaysal30]

I am having a challenging understanding how to input the sale of my rental home in Turbo Tax(TT). 

I purchased my home on 9/2004 for 269K and lived in the residence until 10/1/2011. I subsequently rented the home until 7/31/2021 and sold it for 375K. I had about 21K in closing costs. The Prior depreciation is displaying as 90K in TT.  I input the following in TT. 

Assets Sales Price : 375,000

Assets Sales Expense : 21,000

My tax owed is 44K which is surprising since my gain is only about 106K. How is that possible? Am I doing something wrong in TT? 

[KrisD15]

When you sell rental property, the depreciation needs to be "recaptured".

This is true whether you properly claimed the depreciation or not. 

Depreciation recapture is ordinary income.

Profit over original cost is Capital gain. 

So in your case, you have about 90,000 ordinary income for the depreciation recapture which is reported on Schedule 1, 

AND about 85,000 Capital Gain for the profit over original purchase price which is reported on Schedule D.   

The idea is that the IRS "allowed you" to take this depreciation as an expense year after year (whether you took it or not) so now you have to pay that back. 

[jaysal30]

Thanks KrisD15. 

How do I calculate the Depreciation just to make sure it has been calculated correctly? The property was rented for almost 10 years from 10/1/2011 to 7/31/2021.

[ColeenD3]

Yes, you can manually calculate your depreciation. Note the first and last year, the partial year dates must be taken into consideration.

[RJSH]

Hi Jaysha, Have you found solution to your issue. I am pretty much in the same situation as you and TT is showing outregous amount due. Here is my scenario

Home originally purchased in 2007 for $264,000 as main home.

Moved to other home in 2017, start to rent this home until June 2021. In August, sold the house for $298,000. I had depreciation claimed $16,000 for rental income filing (2017-2021).

TT is now showing I have capital gain of $160,000 and Tax due of $30,000. This is outregious as I clearly did not make $160,000. I tried to dig into details in TT but couldnt figure out how TT is calculating cost basis.

I highly appreciate your feedback.

[LeonardS]

To report the sale of your rental property follow these steps:

1. Open your return if it is not open
2. Enter sale of business property in the search box.
3. Click on the Jump to link in the search result. 
4. Follow the screen prompts to enter your sale information

 Using the information provided in your post

• Purchased 2007
• Purchase price $264000
• Converted to rental in 2017 - Basis for rental = (lower of purchase price or Fair Market Value when Converted) $264000
• Sold in 2021 for $298000
• Depreciation taken $16,000

You should enter the information as shown on the example page below.  With adjustments for actual dates and adding the expense of the sale to the cost.  Continue following the screen prompts your capital gains should now be correct. @RJSH

[RJSH]

Thanks LeonardS. This approach seems to give a reasonable gain/loss.

However the approach mentioned in other posts to enter sale information under 'Rental and Royalty Summary' / 'Sale of Property / Depreciation' seems to reduce the cost basis a lot thus increasing the unreasonable gain and high tax. I don't know why.