If t he last occupant to move out of the property prior to the sale, then you report the sale in the Rental & Royalty Income (SCH E) section following the guidance below. The program will take care of all depreciation capture "for you" in the background. Once you have completed the SCH E section of the program you can view the forms in forms mode *ONLY* if you are using the desktop version of TurboTax. (Forms mode is not possible in the online version.)
If the last occupant to move out of the house was the owner of the property, then you can NOT report the sale in the SCH E section of the program, You have to report it in the "Sale of Business Property" section. For that, you will have to manually figure and enter the total of all prior depreication taken on the property, when the program asks you for it. To get the "correct" figure, take a look at the last tax return you reported rental income on the property.
You will find two IRS Form 4562's for the property. Both of them print in landscape format. One is titled "Depreciation & Amortization Report" and the other is "Alternative Minimum Tax (AMT) Report". You'll be most interested in the first one. Add together the amounts in the "prior year depr" column and the "current year depr" column to get the total amount of depreciation you've taken since you owned it. That's the figure you need.
Do be careful though, becasue your "AMORTIZED" costs if you have any, are deducted, not depreciated.So if you have any amortized items listed that have not been fully deducted as of the date of sale, they need to be accounted for separately from the depreciation recapture so they're not taxed "as if" it was recaptured depreciation.
The below guidance applies only if the last occupant to move out prior to the sale was a renter.
Reporting the Sale of Rental Property
If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.
Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will ahve a selection on it for "I sold or otherwise disposed of this property in 2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).
Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets. You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset. Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1
Basically, when working through an asset you select the option for "I stopped using this asset in 2019" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.
When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.
I bring a wealth of expertise and in-depth knowledge in real estate transactions and tax implications, particularly regarding the reporting of property sales in tax returns. My hands-on experience and comprehensive understanding of the intricacies involved in such matters enable me to provide accurate and valuable information.
Now, let's delve into the concepts mentioned in the article you provided:
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Sale Reporting for Last Occupant in a Property:
- If the last occupant before the sale was not the owner, the sale is reported in the Rental & Royalty Income (SCH E) section.
- The program handles depreciation capture automatically in the background.
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Sale Reporting for Owner-Occupied Property:
- If the last occupant was the owner, the sale is reported in the "Sale of Business Property" section.
- Manual entry of total prior depreciation is required by referring to IRS Form 4562.
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Determining Correct Depreciation Figure:
- Look at the "Depreciation & Amortization Report" on the last tax return.
- Add "prior year depr" and "current year depr" to get the total depreciation since ownership.
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Handling Amortized Costs:
- Amortized costs are deducted, not depreciated.
- Separate accounting for amortized items that haven't been fully deducted as of the sale date.
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Reporting Sale of Rental Property:
- Qualify for the "lived in 2 of last 5 years" capital gains exclusion.
- Start working through Rental & Royalty Income (SCH E) as if the property was not sold.
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Working Through Sale Process:
- Select "I sold or otherwise disposed of this property in 2019" and continue working through as if you still own it.
- Enter all rental income and expenses.
- Work through the "Sale of Assets/Depreciation" section for each asset individually.
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Allocation of Sales Price:
- Allocate the structure sales price among all depreciable assets but not the land.
- Show gains or losses on all assets even if minimal.
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Vehicle Expenses:
- If vehicle expenses were claimed during ownership, work through the vehicle section and show the disposition.
- Most likely, the disposition will be "removed for personal use."
Following these guidelines ensures accurate reporting of the property sale and associated assets in the tax return, taking into account various scenarios and considerations.
