How and where do I add improvements to rental property

[PatriciaV]

Improvements to a Rental Property are reported under Assets/Depreciation from the Rental Summary screen (see screenshot below - click to enlarge).

This year, you have the option to expense certain improvements under the Safe Harbor Election for Small Taxpayers. When you begin the Assets/Depreciation section, TurboTax will ask you about this. If you want to deduct the cost fully this year, answer "yes" to include the this election on your return.

The requirements of this election are:

• Average annual gross receipts less than $10 million; and
• Owns or leases building property with an unadjusted basis of less than $1 million; and
• The total amount paid during the taxable year for repairs, maintenance, improvements, or similar activities performed on such building property doesn't exceed the lesser of-
  • Two percent of the unadjusted basis of the eligible building property; or
  • $10,000
    

If your improvements don't qualify, or you simply wish to depreciate the cost over 27.5 years, continue through the Depreciation interview to set up a new asset. Although it's not obvious, improvements are categorized as Rental Real Estate >> Residential Real Estate. (Land Improvements relate to additions like driveways, fences, patios, etc.) Improvements have Cost, but no "Cost for Land".

If you qualify and chose the Safe Harbor Election for improvements, go to the Rental Expenses section and enter the cost under an appropriate category. If none fits, continue to the page titled "Any Other Expenses?" (screenshot #2) and enter your own description.

[TaxFiller4]

For rental property, I made home improvement expense in for selling for counter top and fence about 8K. Sold property in later half.

How can I show these expense so as to add to cost basis and not as repair expense.

I tried to enter as recommended in below link, but that did not increase my cost basis.
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/3180448-how-and-where-do-i-add-improvements-to-rental-property">ht...>

What I am doing wrong or what else I have to chose to make this work.

[CDTH]

Hi,

This is an old post, but I don't see the screenshots. Would you please kindly let me know where I can find the screenshots?

[PatriciaV]

Here is the TurboTax article on capitalizing improvements: 

How do I handle capital improvements and depreciation for my rental?

This is the Rental Property Summary page from TurboTax Desktop (TurboTax Online has a more detailed list; Assets appear near the bottom).

The Safe Harbor section has changed, but under Assets/Depreciation, you should see a question regarding Elections, which will take you to this page with the rules for expensing Improvements.

Finally, Miscellaneous Expenses can be added with a custom description on this page:

[sand1tiger]

QUESTION - do all expenses and the get ready to sell expenses get somehow calculated behind the scenes to adjust the cost basis of the property to reduce the capital gain?  by expenses I mean, new HVAC and water heater installed a couple of years ago, new dishwasher, washer/dryer and for get ready painting and small repairs.

Here is the information I have from turbotax - Thank you!

506,025.I bought a rental property for 464K 20 yrs ago and sold it last yr for 585K I show owing about 55K in federal taxes and 14K in state taxes

calculated as follows:

W-2Wages and tipsImportant:$123,322

1099-INTInterest incomeImportant:$111

1099-B Capital gains and lossesImportant:$257,519

Sch ERent, royalties,and passthroughsImportant:-$6,924

Belows is what shows as my cost:

Cost:
The amount you paid for it, plus freight, installation, sales tax, legal fees. Learn More
	464,000

Cost of Land:
If the cost of this property includes the land value, enter the land value here Learn More	58000

Date purchased or acquired: (mm/dd/yyyy)

5/10/2010

Depreciation is shown as 157K

Sale information below and shows as $25,031 plus $3,948 is for the commission fee for the realtors.  Other expenses to get it ready I included as expenses.  

Sales Information

Enter the following information about the sale of this asset. You must divide, or allocate the sales price and expenses between the land and the asset (improvement) based on their fair market values.
Asset Sales Price (Business Portion Only) $506,025.
Asset Sales Expenses (Business Portion Only $25,301.
Land Sales Price (Business Portion Only) $78,975.
Land Sales Expenses (Business Portion Only) $3,948.

[LeonardS]

No, expenses to get ready to sell are not added to the adjusted basis.  In general, these are repair expenses that you would do to maintain the home at a basic level and they are deducted as an expense.

A capital improvement is something that actually adds to the value of the home or increases its usefulness, and is added to the basis of the property.  Some examples of capital improvements are:

• Remodels and room additions (including decks and porches)
• New or upgraded landscaping, irrigation, sprinkler system
• Hardscape such as pavement, block or retaining wall, patio
• Fencing
• Swimming pool, spa
• Storm windows, doors
• New roof
• Central vacuum or security system
• Upgraded wiring, plumbing, ductwork
• Central heating, AC, humidifier
• New furnace, water heater
• Filtration, soft-water, or septic system
• Built-in appliances
• New flooring or wall-to-wall carpeting
• Upgraded insulation
• Satellite dish

You will add the cost of capital improvements to the basis of your property.  

From the information you have provided, it appears that your starting basis is $458200 (original cost - Land value). To this value you will add the cost of your capital improvements and the expense of the sale to determine your adjusted basis.  You will enter this on the page Sales of Business or Rental Property in the box on the line Cost of Property (or Tax Basis) Plus Expenses of Sale

[sand1tiger]

Thanks!  I assume you mean that my starting basis is 406,000 (total cost when purchased 464,000 - 58,000 land), correct?  And, add to the 406,000 any home improvements like the new water heater?  I already included the new water heater around 3 yrs ago in my taxes as rental property expenses so does turbotax automatically add it to the cost basis and I just don't see it or do I still need to add it to the cost basis now that I sold it?  I just want to make sure I am not including it twice on the final cost basis.  If I need to add it, I don't see the screen you included in your response in the ones I have to complete in turbotax.  The closest one is this one is this one - so would I change the 464K on the cost line (turbotax definition is the amount you paid for it, plus freight, installation, sales tax, legal fees AND further explanation from turbotax - The cost (basis) of an asset is the amount you paid for it plus what you spent to acquire the item, such as freight, installation, sales tax, and legal fees)  I guess it confuses me because the definition doesn't state to add any improvements made to the rental and that is why I decided to ask - Thanks!:

Cost:
The amount you paid for it, plus freight, installation, sales tax, legal fees. Learn More
	464,000

Cost of Land:
If the cost of this property includes the land value, enter the land value here Learn More	58000

Date purchased or acquired: (mm/dd/yyyy)

5/10/2010

OR

Would the improvements be included here under the sale expenses?

Sales Information

Enter the following information about the sale of this asset. You must divide, or allocate (see below for definition of allocate from turbotax) the sales priceand expenses between the land and the asset (improvement) based on their fair market values.
Asset Sales Price (Business Portion Only) $506,025.
Asset Sales Expenses (Business Portion) Only $25,301.
Land Sales Price (Business Portion Only) $78,975.
Land Sales Expenses (Business Portion Only) $3,948.

Allocate - turbotax's definition:

For a sale involving land, the sales price and expenses must be divided, or allocated, between the amount received and paid for the land and the amount received and paid for the improvement portion of the property.

Example:
You sold a property for $200,000 and had sales expenses of $20,000. If 25% of the value was in the land and 75% was in the improvements, you should allocate these amounts as follows:

Land Sales Price: $200,000 X 25% = $50,000
Improvement Sales Price: $200,000 X 75% = $150,000

Land Sales Expenses: $20,000 X 25% = $5,000
Improvement Sales Expenses: $20,000 X 75% = $15,000

Again, original total cost to buy it was 464K. Sold it last yr for 585K and total depreciation is 157K.

Thank you again!

[LeonardS]

No, if you have already deducted the new water heater as an expense 3 years ago you will not add it to the basis of your property.

The basis you reference in your sentence, "The cost (basis) of an asset is the amount you paid for it plus what you spent to acquire the item, such as freight, installation, sales tax, and legal fees)  I guess it confuses me", refers to the starting basis to which you would add any capital improvements which would give you the adjusted basis used to calculate any gain or loss.

@sand1tiger

[sand1tiger]

So to clarify - the water heater, new AC, etc will not be  added to the cost basis because I expensed them in prior years?  So my cost basis will remain as the cost that I originally paid to get it in 2010 (meaning 464K) and none of the improvements will be added because I expensed them in prior years - correct?  I keep getting information saying that I need to add them and then not add them so it's very confusing.  thanks!

[LeonardS]

Yes, If you have already deducted the items as an expense then you can not add them to the basis of your property.  You can not add an item to the basic if you have already deducted it as an expense.  It is one or the other method not both for the same item.

@sand1tiger