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mandyandderek
New Member

I have expenses for rental house from 2017. I plan on selling the house in 2018. Should I deduct expenses on 17 tax return or with my capital gains when I sell?

 
1 Reply
Carl
Level 15

I have expenses for rental house from 2017. I plan on selling the house in 2018. Should I deduct expenses on 17 tax return or with my capital gains when I sell?

There is a difference between rental expenses and sales expenses. A rental expense could be a sales expense, depending not only on what the expense is for, but when the expense was incurred too. A sales expense will never be a rental expense though. So if you didn't sell the property in 2017, all expenses incurred in 2017 are either rental expenses or property improvements that you must report on your 2017 tax return. You have no sales expenses to claim on your 2017 return for this property. You also can't "carry over" a sales expense either. There's just no such thing.

RENTAL POPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred before the property was placed in service and available for rent are not classified as cleaning/maintenance costs and are not deductible.

Repair

Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred before the property was placed in service and available for rent are not deductible at all.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.


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