A rental property was listed for sale after tenants moved out. Where to report the house sale expenses? Should they been reported separately with the rental expenses?

[fan89]

Where to enter the rental property sale related expenses such as remodeling, repair, and utilities?

[ThomasM125]

You can treat the property as being rented during the time you are preparing it for sale, provided you did not use it for personal purposes after your last tenant left. So, enter the expenses in the rental income section like you normally would.

Expenses for improvements should be set up as assets and repairs can be expensed as such.

[fan89]

I am greatly appreciate your answer!

Since the rental income is much less than the total expense amount for both rental related and sale related cost, if we enter the sale related expenses in the rental income section, will the total income amount limit how much of the expense to be deducted? 

How/where to enter the sale related expenses in order to get deducted from sale price? 

For example, the utilities during the listing period can be entered in the rental income section and get deducted from the sale price money? In my case, the rental income only can cover the property tax and the HOA fees.

Thank you for your response in advance!

[ThomasM125]

There is no limit on the amount of expenses you can deduct from rent income, provided you didn't violate the personal use rules (not more than 14 days or 10% of time rented for personal use.)

There is a limit on how much rental loss you can deduct from your personal income. The most you can deduct against ordinary income in a year is $25,000, and that can be limited based on your income. If your loss is more than what you can deduct this year, you can carryover the balance to future years, and you can write off any accumulated unused losses when you sell the property.

When you report the sale of the property in TurboTax, you should deduct your selling expenses from your sales proceeds and enter the net sale amount or the program may ask you for the selling expenses. The utilities would be entered as an expense on your rental schedule E, they would not be considered selling expenses.

After you enter your rental expenses in TurboTax, on the page that says Let's gather your business info you will see an option for Sale of Business Property. That is where you can enter the sales proceeds net of selling expenses and cost of assets sold and depreciation taken. You could also report the sale by going to each asset and reporting the sale of it, but then you would have to divide the sales proceeds up among the assets, in a way that the total of all the asset sales equaled the net proceeds on the sale of the property.

@fan89 

[Edited 1/14/22 at 8:38PM PST]

[Carl]

Since the rental income is much less than the total expense amount for both rental related and sale related cost, if we enter the sale related expenses in the rental income section, will the total income amount limit how much of the expense to be deducted?

Since the last occupant to vacate the property prior to the sale, the property remains classified as a rental. You claim/deduct all rental expenses "as if" you were preparing the property for the next renter.

It is quite common for rental expenses to exceed rental income every single year the property is classified as a rental and is actually rented. Generally, when you add together what you pay for mortgage interest, property taxes, property insurance and include the depreciation you are required to take by law, those four items alone will exceed your rental income for the year. Add to that the other allowed rental expenses (such as repairs, maintenance, etc.) and you're practically guaranteed to show a loss on the SCH E every year.

Losses that exceed the rental income may get carried over to the next year. So it's not at all uncommon for your carry over losses to increase with each passing year.

Typically, passive rental losses can only be deducted from the passive rental income. But depending on a number of factors (to many to cover here) you could be allowed to deduct up to $25K of those excess losses against other "ordinary" income. (Such as W-2 income). Anything else just gets carried forward to the next tax year.

In the tax year you sell the property, excess losses are claimed/deducted as follows.

-First, the $25K limit discussed above, and only if applicable to your specific situation.

- Any remaining carry over losses are deducted from any gain you may have realized on the sale.

- Any remaining losses are fully deductible against your "other" ordinary income, provided you have that "other" income to deduct it from.

In some situations you may be limited to deducting a maximum of $3K a year from other income. But you can claim that $3K deduction every year until it's all used up.