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    Sale of rental property

    Taxpayer sold a rental house in 2017 and I'm struggling with where on the 4797 to report the value of land as well as an HVAC unit that was installed a couple years ago and we were depreciating at the time of the sale. From what I've read I have to divide the basis of the house for depreciation and the land value and prorate that based on sales price. Just not sure where on 4797 to put the land and the HVAC. Thanks in advance for any help

    #2
    Originally posted by Bonnie View Post
    Taxpayer sold a rental house in 2017 and I'm struggling with where on the 4797 to report the value of land as well as an HVAC unit that was installed a couple years ago and we were depreciating at the time of the sale. From what I've read I have to divide the basis of the house for depreciation and the land value and prorate that based on sales price. Just not sure where on 4797 to put the land and the HVAC. Thanks in advance for any help
    The Form 4797 instructions have a handy chart right on page 1 that tells you where things go on Form 4797. Did you look?

    This sounds pretty straight-forward. Use Form 4797 Part III to report "Gain From Disposition of Property Under Sections 1245, 1250". Use Part I for "Sales or Exchanges of Property Used in a Trade or Business óMost Property Held More Than 1 Year". So, using these descriptions, the land goes on Part I. The building and HVAC(*) goes on Part III. Assuming it's all long term holding period, and there is a gain.

    If depreciation has been taken, wouldn't the total basis ALREADY be divided between land and building? Don't forget the special tax rate that applies to unrecaptured Sec 1250 gain.

    I would expect your professional software to handle most of this when you input the sale information. About all you should have to do yourself, as you state, is to allocate the sales price.

    (*) It might be reasonable to assign a sales price to the HVAC that is equal to its adjusted basis, i.e. zero gain, in which case it is reported on Part I, not Part III.

    Comment


      #3
      Yes, the basis is divided already. I was referring to prorating the sales price between the house and land. And yes software does handle most all but does ask me where on the 4797 I want to put the land and the HVAC. Thank You

      Comment


        #4
        As to sales price of the HVAC should I assign a price to that. It was only a couple of years old and I actually listed sales price as zero and it shows a loss. Or would it be better to assign a price and subtract that from sales price of house

        Comment


          #5
          Originally posted by FEDUKE404
          the depreciable assets to Part III of Form 4797
          Only if disposed at a gain.

          Comment


            #6
            Originally posted by FEDUKE404
            I'll let you ask the OP if asset was sold for gain/loss.
            While you're at it, you probably should cite some references as to the advisability of selling a "new" HVAC system for $zero.
            I don't think it's a "nit" to point out the correct part of Form 4797 to use, especially because that is exactly what the original question was about -- how to fill out the form. Part I and Part III are separate for a reason. I don't have to ask if it's a gain or loss, because the form does that.

            I never said to show the selling price of the HVAC as zero, why would you mis-quote me like that? I said it might be reasonable to sell it for the same amount as its adjusted basis. This has the possible benefit (easier) of moving the reporting to Part I instead of Part III, as I indicated above.
            Last edited by Rapid Robert; 05-02-2018, 06:52 PM.

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              #7
              Form 4797 is not simple

              I will add, Form 4797 is not the easiest form to understand. I think it takes at minimum several years of tax prep experience and some quality CE study material before one is truly competent with it. This includes figuring where the amounts come from, such as K-1s, as well as where they flow to elsewhere in the return. If you have clients who rarely dispose of business use assets, you wouldn't see it very much.

              Comment


                #8
                Originally posted by Bonnie View Post
                Taxpayer sold a rental house in 2017 and I'm struggling with where on the 4797 to report the value of land as well as an HVAC unit that was installed a couple years ago and we were depreciating at the time of the sale. From what I've read I have to divide the basis of the house for depreciation and the land value and prorate that based on sales price. Just not sure where on 4797 to put the land and the HVAC. Thanks in advance for any help
                Bonnie,
                I have reported sale of rental house both ways, I know per 4797 instruction, you are suppose to report the land in part 1, however, I usually combine land, the building and any other improvements as one sales in part 3 of form 4797, then separate the other assets that I was depreciating. Whichever way I reported the sale, the bottom line is, the gain came out the same.
                GV
                PS: If you do report the land in part 3 instead of part 1----you client can end up paying more taxes
                Last edited by Gene V; 05-03-2018, 02:29 PM.

                Comment


                  #9
                  Originally posted by FEDUKE404
                  Whatever. . . you say
                  No - whatever is accurate.

                  This was not "a general tax discussion" -- it was a question about filling out Form 4797.
                  It does make a difference whether disposed at gain or not -- the criteria for Part III of the form is not "depreciable assets".
                  I did not state to show the sale proceeds as zero.

                  Three strikes and you're out.
                  Last edited by Rapid Robert; 05-03-2018, 11:17 AM.

                  Comment


                    #10
                    Originally posted by Gene V View Post
                    I have reported sale of rental house both ways, I know per 4797 instruction, you are suppose to report the land in part 1, however, I usually combine land, the building and any other improvements as one sales in part 3 of form 4797, then separate the other assets that I was depreciating. Whichever way I reported the sale, the bottom line is, the gain came out the same.
                    Why have you reported "both ways"? Some days you feel like following form instructions and some days you don't?

                    As I stated previously, there is a reason why Part I and Part III are separate. Land and Sec 1250/1245 assets are all treated differently under the tax law. By deliberately disregarding the correct way to fill out the form, you might be inadvertently changing things such as unrecaptured Sec 1250 gain amount.

                    From the instructions:

                    "If you disposed of both depreciable property and other property (for example, a building and land) in the same transaction and realized a gain, you must allocate the amount realized between the two types of property based on their respective fair market values (FMVs) to figure the part of the gain to be recaptured as ordinary income because of depreciation. The disposition of each type of property is reported separately in the appropriate part of Form 4797 (for example, for property held more than 1 year, report the sale of a building in Part III and land in Part I)."

                    Comment


                      #11
                      "Why have you reported "both ways"? Some days you feel like following form instructions and some days you don't?"

                      You are so smart! How did you know?
                      Have a nice day.

                      Comment


                        #12
                        Originally posted by feduke404
                        there you go again for a general tax discussion.
                        I'll let you ask the op if asset was sold for gain/loss.
                        While you're at it, you probably should cite some references as to the advisability of selling a "new" hvac system for $zero.
                        Regardless, the tax software still should handle things quite well. That was my basic point.

                        Fe
                        Originally posted by gene v View Post
                        "why have you reported "both ways"? Some days you feel like following form instructions and some days you don't?"

                        you are so smart! How did you know?
                        Have a nice day.
                        Best reply posts yet.
                        Always cite your source for support to defend your opinion

                        Comment


                          #13
                          Originally posted by TAXNJ View Post
                          Best reply posts yet.
                          Yes, they were both spot-on answers to the question of how to correctly fill out Form 4797, and avoid mis-calculating the unrecaptured Sec 1250 gain tax amount.

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