What form(s) do we need to fill out to report the sale of rental
property?
The gain or loss on the sale of rental property is reported on Form 4797 (PDF), Sale of Business Property. Form 1040, Schedule D (PDF), Capital Gains and Losses,
is often used in conjunction with Form 4797. For further information, refer
to Publication 544, Sales on Other Disposition of Assets,Publication 550, Investment Income and Expense, the Instructions to Form 4797 (PDF), Sale of Business Property, and
the Instructions to Form 1040, Schedule D, Capital Gain and Losses.
We are selling rental property and have never claimed depreciation.
What do we do about this when we file our taxes?
When reporting the sale of or computing gain or loss on rental property,
you are required to make an adjustment to your basis for allowable depreciation
regardless of whether the deduction was taken. For more information refer
to Publication 544, Sales or Other Dispositions of Assets, and
the Instructions for Form 4797, Sales of Business Property.
You can claim the depreciation not taken for the rental property in the
years before the year of sale. How to do this depends on when you placed in
service the rental property. If you placed in service the rental property
before calendar year 2003, you may amend your income tax returns for the years
before the year of the sale by using Form 1040X (PDF), Amended
U.S. Individual Income Tax Return, to take the depreciation deductions
for the rental property that should have been taken. Or, you may file a Form 3115 (PDF), Application for Change in Accounting
Method, to claim the depreciation for the rental property that should
have been taken for the years before the year of the sale. The Form 3115 must
be timely filed for the same tax year in which you sell the rental property.
If you placed in service the rental property after calendar year 2002 and
you have unclaimed depreciation for two or more years before the year of sale,
you must use Form 3115 (PDF), Application for
Change in Accounting Method, to claim the depreciation for the rental
property that should have been taken for the years before the year of the
sale. The Form 3115 must be timely filed for the same tax year in which you
sell the rental property.
If you placed in service the rental property after calendar year 2002 and
you have unclaimed depreciation for only the year immediately preceding the
year of sale, you may amend your income tax return for that prior year by
using Form 1040X (PDF), Amended U.S. Individual
Income Tax Return, to take the depreciation deduction for the rental
property that should have been taken. Or, you may file a Form 3115 (PDF), Application for Change in Accounting Method, to claim
the depreciation for the rental property that should have been taken for the
prior year. The Form 3115 must be timely filed for the same tax year in which
you sell the rental property.
What forms do we file to report a loss on the sale of a rental property?
The loss on the sale of rental property is reported on Form 4797 (PDF), (Sale of Business Property) as ordinary loss.
