Reconcile the property before closing
Confirm the cost and adjusted basis of land, building, and improvements. Reconcile accumulated depreciation, mortgage balances, escrow, tenant deposits, and unresolved income or expenses.
Depreciation allowed or allowable can affect tax gain even when deductions were not recorded correctly. Resolve missing schedules before calculating the sale.
Use the settlement statement
Separate gross selling price, selling costs, mortgage payoff, tax and rent prorations, deposit transfers, and net cash. The bank deposit alone does not describe the transaction.
Book gain or loss is generally the difference between net consideration and the carrying amount removed. Tax gain may differ because of depreciation, selling costs, suspended losses, installment treatment, or like-kind exchange rules.
Preserve the history
Mark the property sold or inactive rather than deleting it. Retain purchase records, improvement invoices, depreciation schedules, closing documents, and the final reconciliation.
Have a tax professional calculate capital gain, unrecaptured Section 1250 gain, depreciation recapture for other assets, and any exchange treatment.
Accounting examples
Example: conceptual sale entry
A complete entry commonly includes these components.
| Account or treatment | Debit | Credit |
|---|---|---|
| Cash / sale proceeds | Net received | |
| Accumulated Depreciation | Balance removed | |
| Mortgage Payable | Debt cleared | |
| Land, Building, and Improvements | Historical cost | |
| Gain or Loss on Sale | Balancing result |
Closing costs, prorations, deposits, and tax adjustments require additional lines.
Sources and limitations
This guide provides general educational information for US rental owners. Accounting and tax treatment depends on your facts, accounting method, entity, current law, and professional judgment. State and local rules may impose additional requirements. This is not tax, legal, accounting, financial, or investment advice.
- Publication 544, Sales and Other Dispositions of AssetsInternal Revenue Service
- Publication 551, Basis of AssetsInternal Revenue Service
- Publication 527, Residential Rental PropertyInternal Revenue Service
RentalBooks
How RentalBooks can help
RentalBooks preserves property, asset, depreciation, and journal history while allowing sold properties to leave active operating workflows.
- Track land, buildings, improvements, and accumulated depreciation.
- Record property disposition and post-sale adjustments.
- Retain sold-property history for later review.