Sale of Rental Property

[tsuewalker]

Client inherited her mother's house and turned it into a rental house. She put the property into service and then every year would add something that had to be depreciated. For example, she added a new floor 3 years after house was put into service. When she sold it, it shows just the sales price. How do I break it down, when reporting the sale of each item still being depreciated? House, floor, air conditioning, etc.

Thanks for your help in advance.

[Roland Slugg]

When residential real estate is sold, it's almost unheard of to see an allocation of the selling price between the main property and its sub-components. It sometimes happens when multi-unit apartments are sold, but virtually never for sales of single-family houses or duplexes. Thus, there is no perfect way to report it.

What I do is simply group everything into two parts and use two columns of F-4797, Part III. All the §1250 assets (land, building, improvements, maybe a roof) go in the Property A column, and all the §1245 assets (carpet, appliances, fence, etc.) go in the Property B column. I assign a selling to the Column B (§1245) assets that's equal to their combined depreciated basis, so there is no gain or loss for that group. The rest of the selling price is assigned to the §1250 assets in column A. Thus, the total of the selling prices reported in Columns A and B will be equal to the amount reported on form 1099-S which must be entered on F-4797 at the top of page 1.

The resulting gain in Column A is the correct overall gain. This reporting method produces no §1245 recapture nor §1231 loss. Some or all of the overall gain will be Unrecaptured §1250 Gain, of course, up to the amount of depreciation taken on the §1250 assets.

I believe this is a very reasonable way to handle sales of this kind, and I would be very surprised if the IRS ever challenged it. It's never happened to any of my clients.

[tsuewalker]

Sale of rental real estate

I'm taking it that I report the gain/loss on F 4797 instead of on the depreciation worksheet attached to the 4562. If so, do I stop the depreciation on the date of the sale as it was still rented for the first quarter of the year.

Thanks for your help in advance

Tanya

[Burke]

Your software should calculate depreciation up to the date of sale, if the information regarding disposition is input correctly. That amt will show up on Sche E. Gain/loss goes to 4797, and software should handle this as well.

[tsuewalker]

1095 and ACA

Client was fired from her job in April and had insurance coverage through her employer, JAN-APR. She could no longer afford to get insurance on her own. On the ACA worksheet, which box do I check with regard to why she didn't have insurance. Did have minimum insurance for part of the year or not claiming any exemption and didn't have minimum insurance.

Thanks for your help in advance.

Tanya

[ATSMAN]

Client was fired from her job in April and had insurance coverage through her employer, JAN-APR. She could no longer afford to get insurance on her own. On the ACA worksheet, which box do I check with regard to why she didn't have insurance. Did have minimum insurance for part of the year or not claiming any exemption and didn't have minimum insurance.

Thanks for your help in advance.

Tanya

On my software there is a screen where I can indicate could not afford and let the software calculate the affordability worksheet.

[S T]

Timely post!

I am not questioning Roland's approach to reporting the sale as one transaction for Land/Building, and then separate out the 1245 Assets along with all of the associated sale expenses and assigning sales price on page 2 of form 4797

Question, is that I (through Seminars, etc and reading) Land could be separated and then becomes Sect 1231 gain or loss, Section 1 on form 4797 and then Building is on Page 2 subject to 1250.

I believe the end result might be the same and there seems to conflicting information on the correct way to report. Is there any tax benefit from reporting Land separately and the Building/Improvements Sect 1250 separately.

My software seems to try to accomplish this procedure

I would just like to report the correct way and for the best benefit to the taxpayer (if there is any difference).

Thanks

Sandy

[Burke]

I don't think there is any benefit to separate since it always was rental property since date of death and not a personal residence.