So lets recap:
I converted a personal condo to rental property in 2019, but got water damage before I was able to rent it out..
- I was unable to rent for remainder of the year (and ended up selling it in Feb 2020).
So what you're saying is that you "NEVER" rented the property out. Forget the rental angle. Just forget it. It's just dumb to have to deal with depreciation recapture on property you *NEVER* rented out.
Your property improvements add to the cost basis of the property. Your repairs are "a physical part of" the property improvements. (If there had been no water damage, not one single bit of the work would have been done or necessary.) So everything is a property improvement that adds to the cost basis.
Nothing (and I mean absolutely nothing) gets reported on SCH E. You won't even complete a SCH E at all. To report as such does nothing more than create unnecessary paperwork that will *Not* benefit you one single penny.
Finally, forget about the advertising costs. It's not like you spent tens of thousands of dollars on that. I doubt you spent more than $100, and that will not make a penny of difference to your tax liability. Besides, claiming advertising costs for a property that you *never* rented out, but instead sold, is a flag raiser.
Simply report this sale as the sale of your primary residence (which it exactly what it is) in the Sale of Home (Gain or Loss) section.
As you work it through *READ* *THE* *LINKS*. I'm talking about the "learn more" links you'll see on many of the screens. You'll learn what you can deduct as sales expenses and other things.
Now of course, since you didn't sell the place until 2020, you won't report or claim jack squat on your 2019 return, except for the standard things like property taxes and mortgage interest paid in 2019. But that's a SCH A itemized deduction.
Since you never actually rented the property out, reporting it as a rental property on your 2019 return can (and probably will) bite you on the 2020 return. It's like hanging out a sign that says "Hey! IRS! Audit me now! Please! Hurry! Quick! Fast!"
Additionally, since it would have been investment property for less than a year. you *might" make yourself subject to the higher short term capital gains tax rate. (not sure on that) if you continue to push the rental property angle. I suggest you leave well enough alone. Didn't you sell it because you got tired of dealing with it anyway?
