TurboTax, form 6252, and cost basis?

[kite_rider]

It's snowing so much around my place today that I can't even go skiing! So I'm back to doing my dreaded taxes.

Hopefully someone can explain how I should enter my cost basis into TurboTax so that I'm only paying tax on the gain rather than the entire final installment payment that was made for the property sold in 2018.

Background: I had a rental house with a cost basis of $235,000 (purchased in 2010). Sold it in 2014 as an installment sale. Most payments were interest only aside from a modest down payment. Final installment payment was for $360,000. TurboTax had added this $360,000 payment onto a form 6252 (Installment Sale Income) and then it did a lot of strange calculations that I don't understand regarding "unrecaptured section 1250 gains". From there it calculates some stuff at 0,15,20% and other at 25%. I don't know why.

Anyway, I'm pretty sure it should only be concerned with my capital gains of $125,000 ($360K-$235K) and then do what it needs to do with depreciation if that what section 1250 is.

How do I get it to work with my gains rather than gross payments?

 

[Z3Dreamer]

Need more info on property and sale. How much was total depreciation? Was it accelerated? Is $235,000 net of depreciation or is that the cost before depreciation?

 

[pb4uski]

+1 Your gain will be the sale price ($360K I think) less the basis (price paid less depreciation that you were entitled to take while you were renting it, whether you took it or not).

The depreciation recapture will be taxed at a higher rate and the remaining gain at 15%.

Lots more to it but that is the 50,000 foot level.

 

[Bir48die]

Make sure you make note of any capital improvements that have been made to the house.

 

[kite_rider]

Thanks for the feedback so far! So let me expose how ignorant I am about your questions.

On cost basis the purchase price was $215K (bank repo) and there were $20K worth of documented improvements to make it rentable.

Regarding depreciation - I'm sure I took it over the years it was a rental but I left all of the analysis to TurboTax. That program has created loads of worksheets and forms and I have all the records - just don't know where to look! Is there a specific form or worksheet I can bring up from previous tax years to get this value. Maybe an old Schedule E worksheet from the last year it was rented?

Don't know if your guys use TurboTax, but am I going to have to manually update the forms for this or did I just miss something in the interview?

Your help is appreciated!

 

[Z3Dreamer]

In round figures, $360 sales price, $235 purchase price and roughly $40 in depreciation. I get $160 in gain. Is that what Turbotax says?

I am going to assume that, since the sale occurred years ago in 2014, the installment sale has flowed through year after year. You are not inputting the entire transaction, just this year's proceeds. So, yes, you just missed the input line. You could switch to Forms View, select Form 6252, go to Part II, right click on line A1. At this point you can choose Override and input the data.

Caveat: this is meant for entertainment purposes and is not meant to be tax advice. For that you should ask a professional.

 

[cathy63]

Thanks for the feedback so far! So let me expose how ignorant I am about your questions.

On cost basis the purchase price was $215K (bank repo) and there were $20K worth of documented improvements to make it rentable.

Regarding depreciation - I'm sure I took it over the years it was a rental but I left all of the analysis to TurboTax. That program has created loads of worksheets and forms and I have all the records - just don't know where to look! Is there a specific form or worksheet I can bring up from previous tax years to get this value. Maybe an old Schedule E worksheet from the last year it was rented?

Don't know if your guys use TurboTax, but am I going to have to manually update the forms for this or did I just miss something in the interview?

Your help is appreciated!

Have you used TTax every year? If so, then I think it should already have all the information it needs to do this calculation for you.

If you switched back and forth with another program, or if you imported from a PDF file instead of from a tax file, then you may have to re-enter some numbers. (Although, since you have to recapture depreciation whether or not you claimed it, it might be sufficient to enter the dates on which the property was rented and its cost basis when it entered service.)

If you saved the file that TTax generated for your records, with all of its worksheets and forms, look in the file from the last year during which the property was rented for a page called "Depreciation and Amortization Report". That has the total amounts that you claimed.

 

[Bir48die]

Thanks for the feedback so far! So let me expose how ignorant I am about your questions.



On cost basis the purchase price was $215K (bank repo) and there were $20K worth of documented improvements to make it rentable.



Regarding depreciation - I'm sure I took it over the years it was a rental but I left all of the analysis to TurboTax. That program has created loads of worksheets and forms and I have all the records - just don't know where to look! Is there a specific form or worksheet I can bring up from previous tax years to get this value. Maybe an old Schedule E worksheet from the last year it was rented?



Don't know if your guys use TurboTax, but am I going to have to manually update the forms for this or did I just miss something in the interview?



Your help is appreciated!

Key word is “capital” improvements. Roof, fence total room remodel. Not maintenance or new appliances

 

[pb4uski]

It's snowing so much around my place today that I can't even go skiing! So I'm back to doing my dreaded taxes.

Hopefully someone can explain how I should enter my cost basis into TurboTax so that I'm only paying tax on the gain rather than the entire final installment payment that was made for the property sold in 2018.

Background: I had a rental house with a cost basis of $235,000 (purchased in 2010). Sold it in 2014 as an installment sale. Most payments were interest only aside from a modest down payment. Final installment payment was for $360,000. TurboTax had added this $360,000 payment onto a form 6252 (Installment Sale Income) and then it did a lot of strange calculations that I don't understand regarding "unrecaptured section 1250 gains". From there it calculates some stuff at 0,15,20% and other at 25%. I don't know why.

Anyway, I'm pretty sure it should only be concerned with my capital gains of $125,000 ($360K-$235K) and then do what it needs to do with depreciation if that what section 1250 is.

How do I get it to work with my gains rather than gross payments?

Thinking about it some more, you should have had all of what you need sorted out on your 2014 Form 6252 when you sold the property. The way installment sales work is that you calculate the gain as if it were not an installment sale, and then the installment sale calculations recognize portions of the gain in the year of sale and subsequent years as you receive principal.

From what you described you would have recognized a bit of gain when you sold the property in 2014, probably no gain in 2015-2017 as you only received interest, and the remainder in 2018 when you received the rest of the principal. Also, I have a faint recollection that the minimum gain that can be recognized in the year of sale is the depreciation recapture... but don't quote me on that.

You could add up the recognized gain for 2014-2018 and see if it agrees to the gain on your 2014 Form 6252 as a sense check.

 

[kite_rider]

Thanks for feedback so far! I'm digging up my old returns (always used TurboTax over the years this property was in play) and will find the total depreciation.

Some interesting stuff on form 6252:
Line 19 of this form "Gross profit percentage" came up as 0.4853. Looks like the final $360,000 principal was multiplied by this strange number to calculate my "installment sale income" of $174,708.

Then it goes on to say:

"Summary of gains on payments received smart worksheet"

B. Gains taxed at 0, 15, and 20%: $147,456
C. 25% Gain (Unrecaptured section 1250 gain taxed at 25%) $27,252

So that is how the gain seems to be taxed. I'm mostly curious about this section 1250 stuff at 25%? What is that?

 

[pb4uski]

I think the $27k is the depreciation recapture.... the portion of the gain that relate to your depreciation on the property during the time you owned it subject to 25% tax.

Then the remaining gain of $147k is taxed at 0%, 15% or 20% depending on how much taxable income you have.

 

[kite_rider]

Ok this is making a little more sense now. $147K seems too high since it implies the cost of the house was $213K and it was $215K. Plus it doesn't include the repairs required to make it habitable.

25% tax on depreciation! That sounds steep since the marginal tax rate for many probably isn't that high when they take the depreciation.

Still trying to figure it all out.. wish I knew why TurboTax took the $360K payment and multiplied it by 0.48xx.