Sold Rental Property. Improvements depreciated separately from the structure.

[AV1]

I am trying to establish an Adjusted Basis for a rental property that was sold.  In addition to the structure, the taxpayer also depreciated some improvements and major repairs.  When establishing the Adjusted Basis of the property, to figure out gain or loss on the sale, do I add these improvements and major repairs to the basis of the structure?  For example, Cost + Improvements+ Major Repairs - Depreciation? And if so, how do I report the sale of the improvements on the tax return since there is no value assigned to them?    

Thank you beforehand for your input.

[TaxGuyBill · Accepted solution]

There are a few options to enter the sale in ProSeries.  Here are a couple of them:

1. Manually divide the Sale Price up between the building/land Asset the improvement Assets, then sell each Asset with its respective sales price.
2. Or on each Asset Entry Worksheet, enter the sales date but NOT the price.  That will stop the depreciation, but not report the sale.  Then manually combine the Basis and Depreciation, and enter the sale on the "Enterable 4797".
   

[itonewbie]

Be careful with cost basis for capital gain/loss purposes as that could be different from the cost basis used for depreciation.

Improvements should be included but those should have already been listed as separate assets on prior year returns for depreciation purposes (or included as part of the property's cost basis if those were made prior to the property being placed in service).  Not sure if I understand your statement "since there is no value assigned to them".

Major repairs are maintenance items that generally do not extend the life of the asset and should not be considered part of the cost basis.

The adjusted cost basis would be as you described sans major repairs.  Depreciation allowed or allowable, whichever is larger, would be subject to §1250 recapture to the extent there is any gain.

[itonewbie]

In case you need help with data entry, you may refer to the article in this hyperlink: https://accountants-community.intuit.com/articles/1608748-how-to-enter-a-disposition-of-schedule-e-r...

[Tracy Schrader]

related to this topic, I am also looking for an answer to the following:

I have always reported the full rental income and expenses for my client's rental property under the husbands name.  (His wife is a non-resident alien)  Now they have sold the property and they want to file separately so that each of them only have to pay taxes on their half of the capital gains.  (The property is listed in both names)  

Since the suspended passive carryover loss has been accumulating on his tax history, how should or can I split this gain.

Any help is greatly appreciated!!