Accounting for cost of insurance, tax, interest, utilities, etc..on rental property prior to sale after rental ends?

[RegWA]

We have a rental property that was rented in 2021 and the tenant left in December 2021. We decided in January 2022 to sell.  Minor repairs and clean up performed and the property sold on 4/30/22.

May question is how the costs such as interest, tax, utilities and insurance during the four months are handled.

cost of sale?

Adjustment to cost basis?

thank you advance.

[PatriciaV]

It depends on the status of your Rental Property while you made repairs before it was sold.

If the property was available to be rented while you made repairs (even if you had listed the property for sale), you would report those costs (including mortgage interest) under Rental Expenses.

However, if the property was not available to be rented (or you had no plans to rent it again), any repair costs you incurred before you listed the property increase the basis of the property and reduce any gain on the sale. You can enter these costs as a separate Rental Asset (improvements). But because you can't claim depreciation on assets added and sold in the same year, you may choose to include these costs in Rental Expenses.

In this situation, the mortgage interest would be considered Investment Interest Expense. This is an Itemized Deduction on Schedule A.

Any repairs needed in order to close the sale may be included in Selling Expenses.

For more information, see IRS Pub 527 "Residential Rental Property."

[RegWA]

Thank you for the clear answer.