Remodeling costs to add to cost basis of a rental property that I sold last year

[twistedether]

I bought a house in 2010 and lived in it as a primary residence for the first two years.  But for the last 6 years, it has been a 100% rental property.  (I already know that I don't qualify for "2 in last 5 years" exclusion rule).  My question is this:

How do I add the remodeling costs I did to the house when I initially bought it to the cost basis, so that I can reduce the taxable gain on selling the house in 2018?

More details:  When initially I bought the house I did remodeling (new bathroom floor and tiles, new fireplace tiles, etc). I don't think I ever entered this info in my prior year's returns. Does that mean I lost the opportunity and I can no longer add this to my cost basis in 2018 taxes? I was hoping I could because that would help decrease the profit.

[PaulaM]

When you converted the property from personal use to rental, the basis for depreciation was lower of the adjusted basis or the FMV on the date of the conversion. If you didn't add improvements then, then you can't increase the basis now. You will be using now whatever basis you've been depreciating for the last 6 years. Note: the depreciation gets deducted from basis (recaptured) when figuring gain. 

[twistedether]

Thank you.  What about any improvements that I did just before the sale of the house in 2018, in order to prepare it for selling?  I made improvements/repairs like carpet cleaning, repainting, repairing broken glasses and similar tasks.  Do I put them under sales expenses or do these increase the cost basis?

[PaulaM]

Those aren't selling expenses, but they have the same effect. You add them to the basis.

[twistedether]

Thank you.  Would you know where in the Turbo tax or what I should do in TT to add them to cost basis?  It is not clear when TT gives me a chance to do so during the interview process.  I tried a couple of times but I must be missing something.

[PaulaM]

Follow the directions in this link.I sold my rental property. How do I report that?   

Step #5 is where you will enter the sales data. If you've been depreciating the cost figure will be listed in this section. Simply add your expenses getting the home ready for sale to the cost basis.

[twistedether]

I did that.  But the only option there is where you can either "add an asset" to enter "major improvements", or where the Asset Sale Expenses can be entered.  The repair and minor improvement work that I got done (painting, carpet cleaning, handy work, glass replacement) don't seem to qualify as "major improvements" or "land improvements".  Do I still enter them as "Major improvements"?  

P.S. Somewhere  I read my kind of repairs could be considered as sales expenses.  But I am confused given the differences in opinions.

[twistedether]

To add to what i mentioned above, Turbo tax does give me a chance to review info carried over from 2017 for the house when working in the sale of property/depreciation section.  Here the original cost figure can be changed. See screenshot: https://cl.ly/6bf7f41913c9.   Is that what you were referring to?  

[PaulaM]

Do you not have the property already listed in the assets of your rental? Is this the first time you are using TurboTax? If you have not listed your property before in TurboTax, then enter the sale in the Sale of Business Property section. You will need to know the accumulated depreciation amount for this section.

[twistedether]

This is not my first time.  And the property is listed as an asset when entering business income under Rents and Royalties.  I am not sure what more I can do to clarify my question.  Did you see the later clarification I added with the screen shot?

[PaulaM]

Your image link does not work. I posted this I sold my rental property. How do I report that?  in the thread earlier. If you aren't seeing "Sale of Property/Depreciation" in Step #5, it is likely because you didn't do step #4. Step # 4 is under the Property Profile section.

Indicate that you sold the property in property profile section

Then move to the sale of property/depreciation section to record your sale entries

[twistedether]

Thank you for being patient with me and for your helpful screenshots.  I did exactly how you have explained.  What I am trying to find out is where can I add to the cost basis?  After doing all the steps you mentioned in the screenshots, I went inside the "Sale of property/depreciation" section.  There I do not find any place other than the initial screen or the second screen where they ask me to review the info including the cost of the property.  There the original cost of the property is listed from the prior year's tax returns.  It allows me to change that.  Do I change it there?  Or you are saying I should not change that and instead, I should add one more asset in addition to the property asset and name this second asset as improvements?  If I do that, Turbo tax is telling me it can only be land improvements or major improvements.  My improvements/repairs are more on the asset and only to ready it for the sale.  So where should I enter them if TT thinks that is not the right place?  That leaves the final alternative that I add it as an Asset sales expense.  But you said that this is not a selling expense.  Hopefully you can understand where I am getting confused.  Thoughts?

[tagteam]

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@twistedether wrote:

What I am trying to find out is where can I add to the cost basis?

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I am not sure why you believe you need a specific place in TurboTax to "add" to cost basis.

Look at the screenshot below, which I am fairly certain you have seen already in the program, and enter the your total basis in the Cost box. You don't need to add anything in another part of the program; just calculate your total cost basis and enter it once.

[twistedether]

Thank you for your response.  I didn't see this screen but I know this would come if I was adding a new rental property.  I remember seeing this screen the first time I recorded it as a rental property almost 5 years ago.  Now what I get is this: https://cl.ly/461039361ed4

I suppose I can change the cost here, eh?

[tagteam]

I suppose you can change it, but I honestly do not recall seeing that screen. It should work if you input the correct basis, though.