TT Business (Partnership)

[Fishranger]

Information from a previous TT expert states that the sale and capital gains from rental real estate property should be handled under "rental property" that results in working through each asset individually (ie., house and lot, furniture, air conditioner, etc.) that has been partially depreciated. The 1099-S provided only indicates the entire combined sale as the address of the property. Is it necessary to separately list each item and indicate zero as revenue received for each except for the house and land combined?  

[PatriciaV]

Yes, you need to allocate the sales proceeds to each sold asset that you have previously reported for your Rental Property.

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. Calculate the percentage of basis that belongs to each asset (home, land, etc.), then apply that percentage to the sale.

Example:

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

Here's another example from Critter-3: How to Allocate Gains to Various Assets