I have a residential rental property (reported on Schedule E) that I improved and sold in the SAME year (2024).
Question: Can I add the cost of improvements to the property's cost basis instead of depreciating them?
When I tried increasing the cost basis in TurboTax, it is showing a NEW calculated depreciation amount for this year. I want to ensure I am handling this correctly to minimize depreciation recapture and optimize my tax outcome.
What is the best approach in TurboTax to properly reflect this? Should I be concerned about the new depreciation amount it is calculating?
No, you shouldn't be concerned. You do need to add another asset for the 2024 improvements. You cannot change the original cost basis because the depreciation wouldn't compute correctly, as the rental and improvements have different placed-in-service dates. So, by adding the new improvements, your cost basis will go up.
If the improvements are personal property (not real property), choose the option for carpet, furniture, etc. Under the half-year convention, your depreciation will be zero, and thus no recapture. The half-year convention means you get a half year of depreciation in the year of purchase, and a half year of depreciation in the year of disposition, thus no depreciation if bought and sold in the same year.
First, thank you for the quick response. much appreciated!
more clarifications are needed.
The improvements are plank flooring, kitchen cabinets etc.
Per your advice, i’ll choose the “carpet, furniture etc “. now what ? can i choose the full sec 179 depreciation (if the improvement and sale happens in the same year)? if not, should i use the 27.5 year depreciation even though i sold the property
No. Because you sold the new assets in the same year that you purchased them, you cannot claim any accelerated depreciation (like Section 179). Skip those sections under the asset entry and choose standard depreciation. TurboTax will handle the adjustments needed for the sale.
Note that furniture, appliances, and flooring have a five-year useful life (not 27.5 like residential real estate).