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How do I list major remodeling costs on rental that sold 4/2016?

 I have a rental property since 1999. The last renters left 2015, and we did a major  interior and exterior remodel starting in 2015 and into 2016 totaling about $35,000. On my 2015 tax return, I did claim the normal rental income and expenses, but NONE of the remodeling costs. I sold the property 4/2016. Where do I list the large remodeling costs?... I am thinking as a depreciative item... but knowing that I will also be showing it as a sold item, is there a different way?

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1 Best answer

Accepted Solutions
HelenaC
New Member

How do I list major remodeling costs on rental that sold 4/2016?

The improvements will be added to the basis of your rental, for depreciation and sales purposes. When you sell your rental, your adjusted cost basis will be higher than cost so your gain will be less.

Capital improvements that add to the value of your rental property, prolong its life, or adapt it to new uses must be depreciated over a period of time rather than deducted as a current-year expense. This would include things like:

  • 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, duct work
  • 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

In other words, if you spent $8,000 on a new roof last year, the IRS won't let you deduct the entire $8,000 from last year's rental income. Instead, the $8,000 must be depreciated, which means you deduct it over a period of time instead of all at once.

To enter your rental improvements, simply follow the directions to enter your rental income and expenses. At some point you'll come across the Rental Summary screen. Click Start next to Asset/Depreciation and follow the onscreen instructions. We'll figure out which depreciation method works best in your favor.

Note:  Although it doesn't seem logical, refinance fees and mortgage points are also entered in the Assets/Depreciation section. The IRS considers these amortizable intangibles and accounting rules dictate that those are to be depreciated instead of deducted as an expense.

Related information:

View solution in original post

1 Reply
HelenaC
New Member

How do I list major remodeling costs on rental that sold 4/2016?

The improvements will be added to the basis of your rental, for depreciation and sales purposes. When you sell your rental, your adjusted cost basis will be higher than cost so your gain will be less.

Capital improvements that add to the value of your rental property, prolong its life, or adapt it to new uses must be depreciated over a period of time rather than deducted as a current-year expense. This would include things like:

  • 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, duct work
  • 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

In other words, if you spent $8,000 on a new roof last year, the IRS won't let you deduct the entire $8,000 from last year's rental income. Instead, the $8,000 must be depreciated, which means you deduct it over a period of time instead of all at once.

To enter your rental improvements, simply follow the directions to enter your rental income and expenses. At some point you'll come across the Rental Summary screen. Click Start next to Asset/Depreciation and follow the onscreen instructions. We'll figure out which depreciation method works best in your favor.

Note:  Although it doesn't seem logical, refinance fees and mortgage points are also entered in the Assets/Depreciation section. The IRS considers these amortizable intangibles and accounting rules dictate that those are to be depreciated instead of deducted as an expense.

Related information:

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