KrisD15
Expert Alumni

Investors & landlords

No, from your explanation, the property was not converted to personal use. 

No, you can't include the renovation costs in the basis because those costs were not depreciated. 

You can report this a couple ways, as selling costs and/or separate rental assets.

 

The complication is this-

When you sell the rental there will most likely be two kinds of income for you to report:

"Depreciation Recapture" which is Ordinary Income

Gain (purchase price versus selling proceeds) which is capital gain. 

 

If the "Renovations" include things like painting, enter that amount as a "selling costs".

 

If there was more, such as a new roof, you may need to enter that expense as an additional asset, HOWEVER you need to do it in a way so that there is no depreciation taken on those additional assets since it wasn't an active rental at that time. 

To do that, you might need to enter it as purchased and  placed in service, on the same date as sold. (so there is no depreciation computed) 

Then allocate the sale proceeds to those assets so that there is no Capital Gain/Loss for those particular assets and you get them off the books.  

 

For Example, 

House purchased 300,000

Depreciation taken 100,000

Roof cost 15,000

 

Sold 425,000

 

Allocate 15,000 to the roof, leaves 410,000

Adjusted basis for depreciation recapture is 200,000, since you "expensed" 100,000, so 100,000 is Depreciation Recapture and Ordinary Income since the house did not loose value (you are paying the 100,000 back)

410,000 is applied to the original basis (300,000), so 110,000 Capital gain 

 

Here is a link for further discussion. 

 

 

 

 

 

 

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