How do I handle a home that started as primary residence in 2007, was converted to rental in 2011, then had work done it in 2016, then sold in 2017?

[oripa3485]

Are fees or costs paid by us as the sellers when we sold the property countable re: basis too?

[Coleen3]

Yes.
Sales expenses include:
 - commissions
 - appraisal fees
 - broker's fees
 - legal fees
 - advertising fees
 - home inspection reports
 - title insurance
 - transfer taxes or fees
 - geological surveys
 - loan charges (points) or other fees paid on the buyer's behalf

Sales expenses do not include:
 - mortgage payoffs
 - home equity loan payoffs
 - rent-back costs
 - payoff to creditors
 - property taxes
 - home owner association fees

[oripa3485]

Thank you for your help.  Just so I understand, everything from the purchase/improvements/sale expenses gets used to calculate the adjusted basis, and then I'm using the sale price and the lower of either the 1) FMV at time of conversion to a rental or 2) adjusted basis to determine what gain or loss I declare?  

I guess what I'm getting at is that there's no where else that I get credit for the improvements/sale expenses?

[Coleen3]

Improvements and sales expenses are added to the basis. You have to figure it both ways. See the calculation of gain and loss above. Sometimes, it ends up in a gray zone with neither a loss nor a gain.

[oripa3485]

TurboTax has me entering this info on Form 4797.  Does that sounds right?  One of the other sections seemed like it wanted me to try Schedule C instead, but it didn't seem to fit (was asking about things like cash accounting vs. accrual, a 2% threshold on the property's unadjusted basis, etc.).

[Coleen3]

Form 4797. You do not have a business. You are selling rental property.

[oripa3485]

Okay, thanks.  The way some of the TurboTax questions were worded, I wasn't sure.

Final question (I hope!) -- it appears that the sale ultimately amounts to a reduction of my income, not taking a deduction, so I wouldn't necessarily have to itemize deductions?

[Coleen3]

You never have to take them. If they benefit you, it is an option.