Previous home put up for rental in 2019, never rented, sold in 2020

[dan_e10]

Hello,

In October of 2019, we bought a new home and put our old home up for rental with a property management company.  At closing, we filled out the form to rescind the principal residence exemption since we were attempting to rent.  We had some expenses related to getting the house ready for rental.  We never found renters and we sold the home earlier this month (June 2020).

For our 2019 taxes, it does not make a difference whether I include the expenses and property taxes after October 2019 in the rental property section of Turbotax because it's not deductible.  Given that we never actually rented the home, should I still include the expenses we had in 2019 to prepare for rental in our 2019 return?  If not, do they need to be included in the 2020 return relating to the sale?  What I'm trying to understand is if I'm required to treat this property as a rental property because it was on the market and PRE was rescinded, or if I can treat it as a normal home sale in 2020.  I am assuming there may be some differences in capital gains taxes between the two approaches.

Thank you!

[AnnetteB6 · Accepted solution]

If you did not receive any income from attempting to rent your former home, then the much simpler approach would be to treat the sale as a normal home sale in 2020.  Doing it this way, if the expenses you incurred were improvements to the property and not simply repairs, then those can be added to the basis when you are calculating the gain/loss on the sale of the property.

You asked if you are required to report it as a rental property.  The answer would be 'yes' if you had received any rental income.  Otherwise, I would not say that you are required to do so.  If other users disagree, I'm sure they will offer some additional information for you.

@dan_e10

[dan_e10]

Thank you Annette for your answer.  That is very helpful.

Dan

[Carl]

With the exception of property improvements, expenses incurred to "prepare the property for rent" that very first time are never deductible. It's one of those things where you just have to suck it up, unfortunately.

Personally, that's exactly what I would do and not waste my time and effort with SCH E at all. One good thing is that since it was your primary residence for 2 of the last 5 years you owned it, your gain on the sale will be tax free up to $250K if filing single, and $500K if filing joint. So I'd have no problem sucking up the losses as I was handed my tax exempt gain on the sale.