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kristi
New Member

How can I account for the basement and close the gap for capital gains? Owned property since 2007, converted to a rental in 2015. Finished basement before renting.

 
2 Replies
DavidD66
Employee Tax Expert

How can I account for the basement and close the gap for capital gains? Owned property since 2007, converted to a rental in 2015. Finished basement before renting.

The cost of finishing your basement should have been added to/included in the cost basis of the property, which would have been used to calculate depreciation.  If you did not use the correct cost basis starting in 2015, you may want to file a Form 3115 - Change in Accounting Method.  This form is only available in TurboTax Desktop.  If you want to update the cost basis and amount of depreciation taken on your rental property going back to 2015, you may want to consult with a local tax professional.

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Carl
Level 15

How can I account for the basement and close the gap for capital gains? Owned property since 2007, converted to a rental in 2015. Finished basement before renting.

Bottom line is, you need professional help. You should have added the basement costs in the assets/depreication section of your 2015 tax return since it was "in fact" an income producing rental asset. Then it, like the property, would have been depreciated for the period of time it was a rental. But you didn't do that.

Your problem is, you can't go back and amend your 2015 tax return now to change that. That's because the IRS says you can only amend a tax return for the current tax year and 3 years back. 2015 is four years back.

So I suggest you seek professional help with your 2019 taxes so the IRS Form 3115-Change in Accounting Method can be included with your filing.

For you, this will "NOT" be simple because in addition to having to file the 3115 you also sold the property in the same tax year. On top of that, if your state also taxes personal income, then your problems with this are doubled. So you need to seek professional help with a CPA or tax professional licensed in your state.

 

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