Selling a rental property - How to properly fill out Form 4797 for building vs land?

Yes, you should separate the land from the building on Form 4797. This is important because only the building portion is depreciable - land isn't depreciable for tax purposes. When you converted your home to a rental in 2009, you should have started taking depreciation on the building portion (not the land). When selling a rental property that was previously your primary residence, you'll need to calculate the basis differently for each period of use. You'll need to know: 1) The original purchase price allocation between land/building 2) The fair market value of both components when you converted it to a rental 3) The depreciation you claimed (or should have claimed) during the rental period Your tax software might be calculating this in the background without explicitly asking you to separate the values. However, if it doesn't prompt you at all about land vs. building values, you might need to manually override some entries or use a different input screen specifically for rental property sales.

I had this exact same issue last year. My accountant was useless so I ended up using taxr.ai (https://taxr.ai) and it completely saved me. I uploaded my documents and within minutes they had properly separated the land value from the building value on my Form 4797. I initially tried to figure it out myself using my county property tax assessment, but I was making errors in calculating the adjusted basis and depreciation recapture. The taxr.ai system guided me through exactly how to handle a property that had been converted from personal to rental use, and showed me how to properly allocate the original purchase price between land and building. Their analysis even found a mistake my previous accountant had made in calculating my depreciation deductions over the years I owned the rental.

I want to follow up about my experience with taxr.ai since I was initially skeptical. I went ahead and tried it for my own rental property sale (converted from primary residence in 2012, sold in 2021). The system was actually far more detailed than I expected. It pulled the correct percentage allocations for my area and showed me exactly how to handle the Section 1250 recapture for the depreciation I'd taken. Most impressively, it caught that I was eligible for a partial Section 121 exclusion that my tax software completely missed because of how I initially entered the information. Their document analysis found documentation issues that would have been red flags in an audit. The step-by-step explanation of the basis calculations was extremely helpful - I now understand exactly how Form 4797 works with converted properties.

If you're still struggling with Form 4797 and need to talk to the IRS directly about your specific situation, I recommend using Claimyr (https://claimyr.com). I was stuck in the same situation last year with a rental property sale and needed clarification from the IRS. I had been on hold with the IRS for 3+ hours over multiple days and never got through. Claimyr got me connected to an actual IRS agent within 45 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that I did need to separate land from building on Form 4797 and gave me specific guidance on how to handle my situation. Apparently, this is a common issue they deal with, especially for properties that were converted from personal to rental use.

I need to apologize for my skepticism about Claimyr. After my last failed attempt to reach the IRS (3 hours on hold before getting disconnected), I decided to try the service. It actually worked exactly as advertised. I got a text about 35 minutes after starting the process saying they were about to reach an agent. Then I was connected directly to an IRS representative who specializes in real estate transactions. The agent explained that Form 4797 requires separation of land value because only the building portion is subject to depreciation. She walked me through how to calculate my adjusted basis for a converted property and confirmed that my tax software should allow me to enter these values separately in the detailed property sale section, not just the basic interview questions. This saved me hours of frustration and potentially incorrect filing. I'm actually impressed.

One thing no one has mentioned is that you could check your original purchase documents. When I bought my house, the settlement statement (HUD-1) actually had a breakdown of land vs building value. That's what I used when I filled out my Form 4797 for a similar situation. If you don't have that, you can also check the property tax assessments from around 2009 when you converted it to a rental. Many county assessor websites let you look up historical property records.

Don't forget about the potential partial exclusion of gain under Section 121! Since you lived in the house from 2000-2009 (9 years) and then rented it until 2017 (8 years), you might be able to exclude some of the gain. The normal rule is you can exclude up to $250k ($500k if married filing jointly) if you owned and used the home as your main home for at least 2 out of the 5 years before the sale. You don't meet this test since you sold in 2017. BUT... there's a special rule for properties converted to rentals before the 5-year period. Look up "non-qualified use" rules for Section 121. You might still be eligible for a partial exclusion of the gain attributable to the period it was your primary residence.

I went through this exact situation two years ago when I sold my converted rental property. The key thing that helped me was getting a retrospective appraisal that specifically broke down the land vs building values for the year I converted it to rental use (2009 in your case). Most tax software, including TurboTax, does have a section where you can enter these values separately - it's usually in the "detailed property information" or "advanced entry" section rather than the basic interview questions. Look for a section that asks about "depreciable basis" or "building basis" versus "land basis." For the Section 121 partial exclusion that others mentioned, you're definitely eligible since you lived there 9 out of 17 years. The calculation is: (qualified use years / total ownership years) × total gain = excludable gain (up to $250k). In your case that would be (9/17) × your total gain. Just remember that depreciation recapture on Form 4797 isn't eligible for the Section 121 exclusion, so you'll pay 25% tax on that portion regardless. The exclusion only applies to the remaining capital gain after depreciation recapture. One last tip: make sure you have documentation for whatever land/building allocation method you choose. The IRS likes to see contemporaneous records or professional appraisals for these splits.

Another approach that worked for me when I couldn't find clear documentation was to use the cost approach method. I contacted my homeowner's insurance company and they had records showing the replacement cost of the structure (building only) from when I converted to rental use. I took the replacement cost value and applied a depreciation factor to estimate what the building was worth in 2009, then subtracted that from my total property basis to get the land value. This gave me a reasonable land/building split that I could document. The insurance company's replacement cost estimates are considered reliable by the IRS because they're based on actual construction costs and square footage. Plus, insurance companies keep detailed records going back many years, so you might be able to get this information even if you don't have other documentation from 2009. Just make sure to adjust the replacement cost for the age and condition of your building at the conversion date. Most insurance companies can provide guidance on appropriate depreciation factors to use for this calculation.

I went through this exact same situation a few years back! You absolutely do need to separate the land from building value on Form 4797, and here's a practical tip that might help: check with your mortgage lender from when you purchased the property in 2000. Many lenders actually require an appraisal that breaks down land vs improvement values for underwriting purposes, and they often keep these records for decades. I was able to get a copy of my original appraisal from 2003 that showed the land/building split, which made the Form 4797 calculations much more straightforward. If your lender doesn't have those records anymore, another option is to look at your homeowner's insurance policy from around 2009 when you converted to rental. The dwelling coverage amount typically represents just the building value (since you can't insure land), and you can use that as a reasonable basis for the building portion. One thing to watch out for - make sure you're using the values from 2009 (conversion date) not from 2000 (purchase date) for your depreciation calculations. The depreciable basis should be the lesser of your adjusted basis or fair market value at the time of conversion to rental use. TurboTax should have a section for detailed property entry where you can input these values separately, but sometimes you have to dig into the advanced options rather than just following the basic interview questions. Good luck!