We incurred startup costs to prepare the property for rent, rental expenses once the property was rented, and various costs while vacant and being remodeled leading up to the sale. Since the property sold in 2022, how do we account for these costs on our 2021 taxes, especially during the vacancy period?
Our impression is that if we cannot find a way to claim these in 2021, we will not be able to capture the typical benefits associated with sale in 2022 on what amounts to many tens of thousands of dollars of expenses incurred preparing the property for the market. Which are rental expenses? Which are sales expenses? Which should be listed as assets? Which are simply not able to be deducted or capitalized? Thus far all of our attempts to properly categorize the below and account for them between 2021 and 2022 have been fraught and it occurred to us that we mustn’t be the first people to encounter this challenge. There must be a more elegant and appropriate solution than any we’ve come up with. Example costs:
- Improvements, including all new kitchen built-in appliances (purchased 10/21 but arrived and installed 11/21 through 2/22) and upgraded light fixtures (purchased 11/21 and installed in 2022). Are these added as assets and sold with the home? Are they in service and are they depreciated if the property is vacant and the appliances are never used by a tenant?
- Utility costs while vacant.
- Tenant move-out deep cleaning.
- Home insurance bill (paid 5/20) covering period 5/20 - 5/21. Five days of coverage in 5/21 overlap with renter occupancy.
- Home insurance bill (paid 5/21) covering period May 2021 to May 2022
- Property taxes paid October 21, 2021 for tax period 7/21 to 6/22
- Routine gardening and maintenance while vacant
- Non-routine sale-prep gardening and maintenance costs while vacant
Notes: We qualify for the Section 121 exclusion on this sale and the gain will exceed our joint exclusion amount. My wife will qualify as a real estate professional for tax year 2021 (and possibly 2022).
Thank you very much in advance!
