I sold my rental property in 2021. Can I add our costs to get the house ready to sell? We had to do some sprucing up and changed out some sinks and faucets but did not redo the whole bathroom. What about custom window blinds? I can't find anything about

[ThomasM125]

You can deduct the bathroom work as repairs on your rental schedule E in 2021. You should add the window blinds as assets in TurboTax, but you will see an option to expense them if the cost is under $2,500. Otherwise, you set them up as assets and deduct them as part of the basis of the rental house sale.

[bzyquilter · Accepted solution]

Can you walk me through this?  When doing the interview what screens should I be looking for? Am I to assume it's in the Rental Section?  Sorry, I'm not techy.  TT has always been so easy to follow but with this situation I don't see what I can deduct where?  It's wrong to change the cost basis of the house because of depreciation, correct?   I have a list of things we did but I can't find information to know if they are improvements or expenses.  I've researched all over the place.  They are:

a water feature in the back yard (a fountain)

three doors added to the inside.  (Two in a bathroom that had no doors and a set of french doors for the room that was an office/4th bedroom.)

Are these capital improvements?  Or expenses to count to make it more appealing to buyers (selling expenses)?  Or rental expenses?  

Thank you in advance for your help.

[ThomasM125 · Accepted solution]

You enter everything in the rental section of TurboTax. You should enter the doors and water feature as assets. When you sell the property, TurboTax will calculate the cost basis based on the cost of assets entered and depreciation taken on them. So, you shouldn't adjust the original cost entered.

Go into the Rental section and you will see the

  -  Let's gather your business info screen

  -  Update Rental Properties and Royalties and Edit the property you are working on in the

  -  Rental and Royalty Summary screen. 

 You will come to a screen that says

  -  Review Your (name of rental property) Rental Summary. On that screen, choose

  -  Assets/Depreciation and go to the

  -  My asset summary on which screen you can

  -  Add an Asset. Choose

  - Rental Real Estate Property and then

  - Appliances, carpet, furniture and enter the asset information.

[bzyquilter]

Thank you for your quick response.  Can you please tell me what dates I put for date acquired, date disposed (Date the property sold?), % of use (it was after tenant moved out but I can't put "0").

If you will answer another question I would be most grateful.  We had some improvements before we began renting the house out but failed to include them in the basis when we did our taxes in 2014 for the rental.  So they were not added in, they were not depreciated and by the time we began renting the house I think they would be fully depreciated anyway (8 years).  Is it possible to include them somewhere now so we can increase the cost basis, thus reducing our gain?  Thank you for your patience!

[KrisD15]

For the property, the date acquired is the date you had it ready to be used as a rental and started to advertise for tenants.  The date disposed is the date it sold. 

Even when there was no tenant in the rental, it was a rental (it never switched to personal use) so 100% rental. 

As far as adding assets to the basis, even if you could, it won't do what you want it to do. 

The assets, such as carpet, or new roof, which are purchased before the property is ready to be rented out, is ADDED to the basis of the rental, and that is the basis (value) of the rental going forward. THEN, if later on you install a new roof, that becomes an asset of its own, has its own basis and is depreciated separately. 

Now you sell the rental. Yes, the larger the basis, the less capital gain, HOWEVER depreciation needs to be recaptured, or paid back, when you sell the rental.  

So, say you put the rental building at a basis of 180,000, land 20,000.

You took 30,000 depreciation on the house. 

You sell for 400,000. So 200,000 Capital gains, right? Yes, but you now also must claim 30,000 as depreciation recapture taxed at your income tax rate. 

If you say, "Well I had 10,000 in improvements before I rented, so the capital gain should only be 190,000" 

Yes, but you will now need to recapture 40,000 depreciation. 

If your tax rate is higher than the capital gain rate, you lose.