I have seen this question asked, but the answers are not clear. I fixed up a rental property in 2016 to sell, but it did not sell until 2017. I claimed those costs as a class 1 UCC assuming it would carry forward to the year of the actual sale, or be written off over whatever timeline if it didn't sell and had to be rented again. I did not claim any current expenses after I decided to sell the property so this added up to quite a bit.
Here is the best way I could figure out how to report this and it would be great if someone could confirm if this is correct - it just seems like way to many steps.
I have zero'd out the UCC by claiming the assets sold at the amount that was remaining at the beginning of the year, I have filled out no other information on the T766 in terms of land or building sales (I never claimed CCA on the building). I then filled out the sale information under the Capitol Gains section and added that unclaimed UCC to the Outlays and Expenses - Please confirm if this is the correct process.
It is slightly more complicated, due to the possibility of a recapture amount (income amount that is added to your rental income) or you may be able to claim a terminal loss (loss amount that gets deducted from your rental income).
I'm going to base the following answer on the assumption that you are using Forms mode. (Simply because it would be easier for me to describe what you need to do.) So in Forms mode, please locate the T776 that has all your information regarding this rental property.
On page 3 of the T776 is where you enter all the information regarding CCA. In Area A, you will have a row with information for Class 1 (your building). You would have entered the starting UCC balance for the year in column 2.
In Area E, you will indicate that you disposed of your Class 1 building. Now here is where it gets a bit more complicated. In the Proceeds column, you need to enter the LOWER amount between the Proceeds of the building and the actual cost of the building. So if the sale proceeds on the building was $500K and the original cost of the building was $200K, you will need to enter $200K into the Proceeds column. If the sale proceeds was $100K and the original cost of the building was $300K, you will need to enter $100K into the Proceeds column.
(In your proceeds, you will need to factor in the expenses related to the sale. These costs will need to be apportioned between the land and the building.)
That will take care of the UCC/CCA of the building, and you will likely end up with either a recapture (see line 9947 on the T776) or a terminal loss (see line 9948 on the T776).
Don't forget to report any capital gains or capital loss on the schedule 3.
When this capital loss is entered on Schedule 3 - it does not seem to take into account the UCC. It's not the same number as the terminal loss. Will this be a problem? My understanding is depreciable property is not supposed to generate a capital loss.
Thank you for choosing TurboTax. There is a possibility of recapture being generated, which is an amount treated as an income that is added to your rental income when the property is sold. Or you may be able to claim a terminal loss and this amount is deducted from your rental income. Please note that the treatment for capital loss is very different from terminal loss. If you are unsure of the benefits of either I am suggesting you consult with one of our experts to guide you on the matter.
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