I have to pay capital gains on the sale of my rental. Where can I deduct the home improvement expenses needed to sell the home?

[MinhT1 · Accepted solution]

The cost of improvements to your home is added to the cost basis of your home. It will thus reduce your capital gains.

[Carl]

Property improvements are not deducted. Not ever. Property improvements are entered in the assets/depreciation section and depreciated over time. Then when you sell the property you are required by law to recapture all depreciation taken and pay taxes on it in the year you sell.

If you did not depreciate your property improvements, then  you are required to reduce your cost basis by the amount of depreciation you "should" have taken.

So if you didn't depreciate your property improvements, go ahead and enter them in the assets/depreciation section with their "real" date placed in service, even if in a prior year. The program will then take care of it for you by reducing your cost basis in the end when all done, then "recapturing" that depreication and taxing it appropriately. Recaptured depreciation is taxed anywhere from 0% to a maximum of 25% depending on your overal AGI for the year.