I sold my rental property in 2020; I made two major improvements to the property in 2019-a bath reno and HVAC furnace replacement, totally about $11,000.
When I filed my taxes last year (tax year 2019), I added both as assets, under the subcategory of “Appliances, carpet, furniture” and they were depreciated over 5 years.
Since selling the condo in 2020, I thought the cost of these improvements would be added to the basis of my property, but the only thing that increased my basis (I reviewed the form 4797 for this info) was the closing costs I incurred when I sold the property.
Should I expect these “assets” to increase my basis dollar for dollar? If so, how is this info entered? Does Turbo Tax add it to the basis automatically (assuming it's entered correctly)?
After doing a lot of reading, I thought maybe the problem was that I classified them incorrectly under asset type, so I went back and made changes.
When adding an asset, the first screen asks, Describe this Asset.
I selected the first option, “Rental Real Estate Property” for both bath reno and HVAC furnace.
The next screen asks, How would you categorize this asset?
- Residential Rental Real Estate
- Appliances, carpet, Furniture
- Land Improvements
Which should I be selecting for each of the improvements? As mentioned above, in 2019, and initially when doing my 2020 taxes, I selected “Appliances, carpet and furniture”.
I changed the “Asset Type” for both to Asset Type: I-Residential Rental real estate”. They are now depreciated over 27.5 years with SL as depreciation method. Making this change did not increase my basis though.
What am I doing wrong (other than trying to do this myself!)? Shouldn't my basis automatically increase with capital improvements?
