Capital Improvements to Rental Property prior to Sale

[Art67]

I sold my rental property in June 2021. I stopped renting it in February 2021. During March-April I completed a major renovation, including floor replacement, new kitchen cabinets, tiles, appliances, new bathtub, bathroom tiles, painting, etc. I paid a total of $16,000 for materials and $10,000 for labor.

How can I enter these capital improvements in TurboTax to add to my cost basis and avoid depreciation?

Is it appropriate if I add a lump sum of $26,000 as an asset with a date of sale as my closing date?

Thanks!

[MaryK4]

You will want to add the costs in the Adjustments to Basis.  The adjusted basis of property is your original cost or other basis plus (increased by) certain additions -Increases to basis include costs of any improvements having a useful life of more than 1 year.  

You would not add a depreciation expenses because you had them less than one year.

[Art67]

Thank you for your reply MaryK!

Do you know where in TurboTax I can find "Adjustments to Basis" for the sale of a rental property? It seems not to be included in the step-by-step Sales Information. It is also not a part of the Asset Entry Worksheet.

[ColeenD3]

You would find the screen in the Rental section. You will have to add the improvement amount to the cost. There is no other entry point, since it was not eligible for depreciation.

Full steps for entering rental property:

• The first entry for the sale is found during the set-up of the property: Tell us about your situation this year/Click Sold or disposed of property

Next, the asset section of expenses will already be checked: 

*Assets

*Sold rental property

Includes info on the property you sold or disposed of. Since we know this applies to you, we've already selected it.

• After you click on Asset, you will be asked about the purchase: Tell Us About This Rental Asset
• In the screen Tell Us More About This Rental Asset, you will indicate the sale the date of the sale and the date you began using it for business. You can see the screenshot in a previous answer.
• Next: Confirm Your Prior Depreciation
• Next: Special Handling Required?
• Next Home Sale?
• Next: Sales Information. This is where you will be asked about the sales price.

[Art67]

Thank you!

[DianeW777]

Yes, You can include the capital improvements made in the year of sale to the selling expenses which will provide the correct outcome for your tax return. That asset cannot be depreciated since it was in the year of sale.