The property was rented from Jan to about May but we did not receive any rent.
That's actually irrelevant. The property was still classified as residential rental real estate for the year, up to and including the date you closed on the sale of the property. You'll just report your rental income as ZERO. Any rental expenses incurred are exactly that - rental expenses.
When we finally got the renter out, we had to spend A LOT of money to get the property cleaned out and repaired so it could be rented again. Toward the end of this process an individual in the apt complex made an offer to buy the property. We decided at that time to sell rather than continue to rent.
All expenses incurred after the last renter moved out are more correctly classified as sales expenses. That would include all repairs and cleaning costs. Anything you did that adds value to the property is a property improvement and gets classified as such. More than likely though, I doubt you have anything that would qualify as a property improvement. I do expect you to have quite a bit in sales expenses incurred in what is referred to as "preparing the property for sale." Since you sold and did not rent it again, it's easier on you to claim sales expenses, as it would be difficult to prove they were rental expenses since another renter did not move in prior to the sale.
Reporting the Sale of Rental Property
If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.
Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in 2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).
Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets. You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset. Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1
Basically, when working through an asset you select the option for "I stopped using this asset in 2019" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.
When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.
