The IRS requires that you take depreciation. Since you have not taken it in the past, you can fill out one form to claim it for past years, Instructions for Form 3115. You must select depreciation and let the program determine what it should have been on the house.
For the improvements you made, add that to the basis of the house when you reach the sales price.
Basis Example:
- purchase $30,000
- $15,000 of depreciation should have been taken through the years.
- Capital Improvements: $60,000
- Basis in property is $30,000-$15,000+$60,000 = $75,000 PLUS expenses of purchase and sale
Appliances are not a capital improvement, replacing those are normal every few years. Here is some information to help you know what counts. Keep records and pictures for 4 years after the sale.
IRS Pub 527 for Rental Property contains the rules. The IRS has a short, online, anonymous quiz to help with your expenses as well, Is My Residential Rental Income Taxable and/or Are My Expenses Deductible?
@marcost
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
