Investors & landlords

I bought the apartment and put it into service as a rental unit on 9/23/87. In-service date was 9/1/87 and I began taking depreciation, using 27.5 years SL and MM convention.

Think you made a typo there. The unit was either in service on 9/23/87 or 9/1/87. One or the other. Either way, since rental property uses the mid-month convention for depreciation, depreciation started on 9/15/87.

The co-op didn't own the land at the time (it was leased), so I was able to include the full purchase price in my cost basis. The co-op eventually bought the land on 11/9/88.

That just means you would have entered zero in the COST OF LAND box.

The co-op eventually bought the land on 11/9/88.

So you would have added the cost of the land to the amount already entered in the COST box, and then entered that amount in the COST OF LAND box. What would happen is the program (not you) would subtract the COST OF LAND amount from the COST amount to determine the depreciation basis. So basically, there would have been no change in the depreciation basis since land is not depreciated. But it would add that cost of the land to your total cost basis of the property.

I moved into the unit on 9/1/89 and it became my primary residence. I stopped taking depreciation at that point.

I assume you correctly worked through all the assets listed in the assets/depreciation section and converted each asset individually to personal use, with a conversion date of 9/1/89 or any date before that, which was after the last tenant moved out.

we moved out on 8/25/92 and put it into service as a rental unit again. I resumed taking depreciation and rented it continuously for about the next 30 years.

Just to clarify, depreciation doesn't "resume".  It starts all over from year one using a new adjusted cost basis. The new adjusted cost basis is the original cost basis used for depreciation, minus the total of all depreciation already taken. So the amount in the COST box would have been reduced by the total of all depreciation taken up to 9/1/89. The amount in the COST OF LAND box would remain the same, since land is not depreciated.

I took depreciation until the unit was fully depreciated as of 3/17/15.

From 9//1/89 to 3/17/15 isn't anywhere close to 27.5 years, which indicates you did things wrong.

I think there were a few years when TT told me to take more than the usual 1/27th depreciation, maybe to make up for the years that I suspended depreciation while using the unit as my primary residence.

Your memory is just as rusty as mine can be on some things at times. I'm quite certain that didn't happen. At least, not automatically by the program.

In any case, every dollar of my original cost basis was depreciated.

Because you've sold the property, combined with the fact it's total period of being classified as a rental is in excess of 27.5 years and that the total depreciation taken over the period of time you owned it did not exceed the original cost basis of the structure, there's really no need to fix the boo-boo you made with the cost basis when placing it back in service. You'll still be recapturing the total depreciation taken, which is basically the cost basis of the structure.

My last tenant moved out on 4/9/22, so it was rented for the first 99 days (.27 yr) of 2022 only.

I'm still following you. Keep reading.

After the last tenant moved out on 4/9/22, I remodeled the unit over the remainder (.73 yr) of 2022 and sold it in 2023, closing on 1/10/23. The remodeled unit was never put back into service as a rental.

I suggest you convert the unit back to personal use with a conversion date of 4/10/22. This will stop depreciation on any other assets besides the structure you may be depreciating. Also, since it's clear you had no intent to rent out the unit before you sold it, you would be required/expected to do this from an IRS perspective. There would also be no need for the SCH E to even be included on the 2023 return, as you can't correctly report the sale in the SCH E section of the program anyway.

CAPITAL IMPROVEMENTS: I spent $30,390 on capital improvements in 2022,

Since the improvements were done in 2022 after the last renter moved out, there's no way possible for those improvements to have been placed "in service" as a rental asset, before you sold the property. So absolutely nothing concerning these improvements will be entered anywhere on your 2022 tax return. (you'll deal with it on the 2023 taxes).

plus $5,882 in 2023,

I am assuming this is for the appliances referenced below.

  The amount paid in 2023 occurred AFTER the 1/10/23 sale because this amount is for appliances that I bought on a payment plan that will be paid in full before the end of 2023.

Your payment plan is irrelevant and doesn't matter. If that $5,882 is for those appliances, they add to your cost basis "in full" in the tax year you obligated yourself to pay that amount.

I had $19,617 of other expense (non-capitalizable carrying costs) in 2022, but only $6,111 of that was incurred while the unit was still a rental.

Expenses incurred in 2022 while the property was still classified as a rental are deductible as a rental expense on the SCH E. Period. End of story.

Costs incurred after the property was converted to personal use are not deductible anywhere. Just keep in mind that if you paid property taxes and mortgage interest in 2022, that paid for the period of time it was classified as a rental are a SCH E deduction, while that paid for the period of time it was personal use is a SCH A deduction.

Also, when the remodeling was taking place, I'm quite confident it required the use of electricity, water, and maybe other utilities such as gas for heat. Provided you did not live in the property for any personal reasons or purposes, you can include the cost of those utilities in the cost basis of the property improvements done, if the cost was incurred while the work was in progress. 

On the "Was This Property Rented for All of 2022" screen, I answered "No, this property was not rented all year," and showed Days rented = 99, Personal use = 0. I did NOT check the box that says "I did not rent or attempt to rent this property at all in 2022." Would you agree with those choices?

I agree only if the property was classified as a rental for the entire tax year, which you most certainly can do. But I wouldn't recommend it since you clearly stated you did not rent it out once the work was done, thus insinuating you had no intention of renting it out after the work was done. In that case, you would not have any "carrying costs", as they would be SCH E rental expenses if incurred while the property is still classified as a rental.

Since the remodeled apartment was never put into service and went straight to sale in 2023, I never depreciated any of the capital improvements

...and you would not depreciate them. In fact, you won't enter your property improvements anywhere on the SCH E (i.e.; you will not enter them in the assets/depreciation section.)

(f), but will add them to my cost basis when I do my 2023 taxes

Correct. Do do that, you can't report the sale in the Rental & Royalty Income (SCH E) section of the program. You would instead report the sale in the "Sale of Business Property" section. Thats how you increase your cost basis without having to depreciate the improvements for even 1 day, since they were never placed in service.

When I do that, can I include the amount that I spent (on appliances) in 2023, even though I paid for them AFTER the sale occurred?

If the appliances were included in the sale, then you most certainly would include what you paid for those appliances in your total cost basis.

But what about the carrying costs that I incurred AFTER 4/9/22, when the tenant moved out,

You don't specify what those carrying costs are. So I can only assume. I've already covered the three basics of property taxes, mortgage interest and property insurance, along with a possible way to handle utilities costs as part of the property improvements costs. Typically, once a property is converted to personal use, that's what it is and there are no "carrying costs" associated with it, just like there would be no such thing as carrying costs if you sold your primary residence.

When I do my 2023 taxes I will state that the property was rented for only 10 days in 2023.

That would mean you would have to place your property improvements "in service" at some point; typically no later than the day after the work was completed. You'd really have to. For example, if you put on a new roof in 2022, there's no way you can rent out the property without including the roof as an "in service" asset.

If you're going to leave the property classified as a rental for the entire 2022 tax year, yet not place your property improvements in service (assuming they were completed in 2022 and you can prove it (or prove otherwise) if audited, I would think that has a risk of at least "raising eyebrows" with the IRS. But I really don't know if it would or not. I myself would not risk it and would just convert the property to personal use the day after the last tenant moved out. Otherwise, you would only need to report the property as rented in 2023 for 1 day. Then it would be "known" and expected that the rental income for that one day was paid prior to that one day; which would have been on Dec 31 of the prior year or before. But it would really look funny for a property rented for only 99 days in 2022 and 1-10 days in 2023.

I will include my selling expenses, capital improvements (including those made when I still lived in the unit myself, back in 1989),

The improvements made in 1989 should already have been included in the adjusted cost basis used for depreciation when you converted the property back to a rental on 8/25/92. If you did not do that, then you need to figure the depreciation you "should" have taken on those improvements starting 8/25/92 and recapture it. Remember, when you sell the property you are required to recapture the "higher" of the depreciation actually taken, or the depreciation you "should" have taken. So if you didn't depreciate your property improvements done in 1989, you have unreported depreciation to recapture.Yet another reason why you can't report the sale in the rental section of the program, and need to report it in the "Sale of Business Property" section.

and any carrying costs incurred after my last tenant moved out.

Can't comment on that really, as if you left the property classified as a rental for all of 2022, you don't have any "carrying costs"; only SCH E rental expenses.

I realize there will also be a ton of recaptured depreciation (27.5 years' worth) working against me in figuring my capital gain.

You may end up recapturing more depreciation than y ou actually took, if you didn't include the 1989 property improvements in the adjusted cost basis when you converted to rental for a 2nd time.

Can you think of anything special that I need to watch for when entering that info into TT 2023?

Three things to keep in mind at all times when dealing with taxes and the IRS.

1) You are guilty until proven innocent.

2) The burden of proof is in the accused (that would be you) and not the accuser.

3) If it's not in writing, then it did not occur. (i.e.; do you have a rental contract that covers the 1-10 days rented in 2023?)