Depreciation Recapture on Sale of Rental Property - Percentage of Business Use

Forum|Forum|2 years ago
March 17, 2024
1 reply
7 views

I am dealing with the sale of rental property that, in 2023 was 1/3 personal use and 2/3 business use - although that varied over the years. I am following the instructions here for an asset reported on Screen 22, Depreciation:

https://accountants.intuit.com/support/en-us/help-article/form-8949/reporting-sale-property-used-rental-individual/L2s3l0Tyh_US_en_US

However, under "Additional Information" in Screen 22, I have an entry of 0.6666 in the "Percentage of Business Use" and, playing around with different entries, I realize that differences in the value in that field dramatically affect the gain shown on Line 24 of Form 4797p2.

My understanding was that the 'Percentage of Business Use' entry affects the year-to-year depreciation used, depending on the business-to-personal use ratio. However, I am not sure why the number would affect the gain on sale so dramatically (and consequently, I don't know what the correct entry should be, if any - it seems that the final year's ratio shouldn't be the arbiter here).

Any guidance, or pointers in the right direction, would be greatly appreciated. Thank you!

T

TaxGuyBill

Level 15

Assuming the property appreciated in value, wouldn't the overall taxable income be the same? Changing the business percentage for 4797 would also change the personal percentage on 8949.

With that being said, there is an IRS Publication that seems to indicate that real estate should all be lumped as one item on 4797, reporting 100% of the gain/loss, rather than splitting it between 4797 and 8949 (non-real estate should be split though).

G

GuyIncognitoAuthor

Level 2

Yes, the property was sold at a gain (and every year the expenses, including depreciation, were greater than the income).

I agree: I wouldn't expect this to affect the overall tax owed which is why this result is so odd. I'm not sure why the business use portion of the depreciation affects the recapture/overall tax, but it certainly seems to.

C

CPARUN1

Level 2

Were you ever able to solve this issue with reporting the sale of the property used personally when sold? I am encountering a short-term rental that will be sold. If it was used 92% for business in the year of sale, how do I get the remaining 8% included in the sale transaction so that it is taxed correctly? I can't find guidance on this anywhere.

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