Hi. I made about $13,000 of improvements to my rental property right before I sold it in 2023. I had stopped renting the property out in April, the improvements were completed in June, and I sold it in July. I added the improvement as a separate line item calling it improvements to residential real estate. I figured out how to ensure no depreciation was claimed for the improvements since I did them after the property was no longer available for rent. My only issue s that TurboTax software is showing this improvement as a short-term capital gain and thus considered ordinary income. My understanding is that capital improvements are part of the property and would be included as a long-term capital cost in the basis of the property since I owned the property for more than 1 year. If I allocate the sales price and expenses based on percentage between the land, condo building itself, and the improvement, I am paying ordinary tax rate on a net gain of $1,200 for the improvement. If I could include the improvement in the cost basis of the condo itself (as I would do if it was my personal home). I would only be subject to capital gains tax rate. Do not know how to fix this in Turbotax software. Please help.
