It was placed in service when the renovations were completed/installed and ready to be used..... it is not until they get a renter. They need to report the sale through Schedule E since it was never owner occupied before the sale. All they had was a vacancy period in their rental regardless of their future intent. I reported the sale of a rental in Turbo Tax CD version on my Schedule E, It then reported the sale of a business assest as it should. I did include" all" capital improvements over the life of ownership in with the "basis" even those I depreciated which I received a tax deduction that year as well but then the recapture of depreciated takes care of any double tax credit to determine the capital gains (this is if you didn't occupy it 2 yrs out of the last 5 years before selling to get the capital gains exclusion).
