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I guess I'm the only one around here doing these sales on a regular basis. So I'll chime in.

First off, ignore the split between land and building. That is only important for depreciation. Now that you're selling, you're selling the whole property. So treat it all as one single lump. You have your original basis (the appraised value from the date of death). You have the depreciation you've taken or should have taken. You have the selling price. And you have selling expenses. None of these are separated between land and building. They are all just totals.

Your first entry will be on form 4797, part III (on page 2). Rental real estate is section 1250 property, so after filling in lines 19 - 24, you'll go to line 26. Odds are you've been using straight line depreciation, so the note there will apply. Skip down to lines 30 - 32, then follow the instructions printed on the form from there.

You should end up with the gain showing up on page 1 of the 4797, then transferring to schedule D. There it gets added in to any other capital gains or losses before flowing to page 1 of your 1040. But the amount from form 4797 line 22 will rear it's ugly head again when you complete the capital gains tax worksheet when calculating your tax amount.

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