Carl
Level 15

Investors & landlords

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

That statement is a bit misleading. The cost of your property improvements does get included in the overall cost basis. However, since those improvements were never placed "in service" as a rental asset, you need to include the cost in your cost basis in a way so they will not be depreciated. Or if they are depreciated, the depreciation amount will be so minimal it won't matter.

Doing as @KrisD15 suggests and adding those property improvements to the assets/depreciation section with an "in service" date of the closing date of the sale will work just fine. With only one day in service, it's likely no depreciation will be taken. But if it is, then it will be so minimal that it really won't matter and won't make any difference to your overall bottom line tax liability.

One thing I've never checked out, is that if you place the asset in service on the closing date of the sale, and then declare 1 day of personal use on that asset, will that guarantee no depreciation is taken? I would expect it to, but don't know that for a fact.